Type of qualified retirement plan in which employees make salary reduced, pre-tax contributions to an employee trust. In many cases, the employer will match employee contributions up to a specified level.

Source: ILPA

A financing event where by venture capitalists invest in a company that was previously financed by founders and/or angels. The "A" is from Series "A" Preferred stock. See "B" round.

Source: ILPA

Defined by Rule 501 of Regulation D, an individual (i.e. non-corporate) "accredited investor" is either a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase OR a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. For the complete definition of accredited investor, see the SEC website.

Source: ILPA

The recording of transactions as income is earned or expenses are incurred, rather than when income is received or expenses are paid (i.e., cash basis).

Source: GIPS

The interest due on preferred stock or a bond since the last interest payment was made.

Source: ILPA

The establishment of control in one business entity by another, often with the assistance of private equity. Third party acquisition is a common exit mechanism for private equity funds. The process of gaining control, possession or ownership of a private portfolio company by an operating company or conglomerate.

Source: ILPA

Capital provided to a company to finance its controlling interest in another entity for growth purposes.

Source: ILPA

The IRS approved method of calculating depreciation expense for tax purposes. Also known as Accelerated Depreciation.

Source: ILPA

A market in which transactions for an asset take place with sufficient frequency and volume to provide pricing information on an on-going basis.

Source: IPEV

A financial instrument traded in an Active Market. The necessary level of trading required to meet these criteria is a matter of judgment.

Source: IPEV

Risk measures included in a gips composite report or gips pooled fund report beyond those required to be presented.

Source: GIPS

The Adjusted Enterprise Value is the Enterprise Value adjusted for factors that a Market Participant would take into account, including but not limited to surplus assets, excess liabilities, contingencies and other relevant factors.

Source: IPEV

An adjustment condition occurs if the company does not close on an equity investment in the company for a minimum of $xxx, net of brokerage fees, on or before a series of other predetermined events, i.e. delivery of term sheet to preferred stockholders.

Source: ILPA

All fees other than transaction costs and the investment management fee. Administrative fees may include custody fees, accounting fees, auditing fees, consulting fees, legal fees, performance measurement fees, and other related fees.

Source: IPEV

A security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets.

Source: ILPA

A committee of LPs within an individual fund delegated by the GP to give clearance and guidance on any situations involving a possible conflict of interest.

Source: ILPA

Assets for which the firm provides investment recommendations but has no control over implementation of investment decisions and no trading authority.

Source: GIPS

A market intermediary that assists in the structuring of a private equity transaction.

Source: ILPA

Under the AIFMD, an AIF (Alternative Investment Fund) is a ‘collective investment undertaking’ that is not otherwise subject to the UCITS (Undertakings for Collective Investment in Transferable Securities) regime, which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors. Both open-ended and closed-ended vehicles and listed and unlisted vehicles can be AIFs for the purposes of the AIFMD. The definition captures a large breadth of vehicles that would be regarded as “funds”, including all non-UCITS investment funds, wherever established and regardless of their legal structure (including limited partnerships, limited liability partnerships and limited liability corporations). AIFs include hedge funds, private equity funds, retail investment funds, investment companies and real estate funds. Single investor vehicles are generally not viewed as AIFs as they would not be seen as collective investment undertakings. For the purpose of this Handbook, the term “AIFs” is used to refer to “private equity AIFs”.

Source: Invest EUROPE

Under the AIFMD, an AIFM is defined as an entity that provides, at a minimum, portfolio management and risk management services to one or more AIFs as its regular business irrespective of where the AIFs are located or what legal form the AIFM takes. The AIFM can either be an external manager appointed by or on behalf of the AIF, or the AIF itself (any delegate managing assets should not therefore be an AIFM). The Directive applies to:

• EU AIFMs managing one or more EU AIFs/non-EU AIFs (irrespective of whether or not they are marketed in the EU);


• Non-EU AIFMs managing one or more EU AIFs (irrespective of whether or not they are marketed in the EU);


• Non-EU AIFMs marketing EU AIFs/non-EU AIFs in the EU.

Source: Invest EUROPE

Invest EUROPE: The Alternative Investment Fund Managers Directive (AIFMD) is an EU Directive that took effect on 22 July 2013, subject to a one-year transitional period that expired on 22 July 2014. The AIFMD obliges managers falling within its scope to be authorised by their national competent authorities.

Esma: Alternative Investment Fund Managers Directive

Source: Invest EUROPE, Esma

Alternative Instrument Identifier

Source: esma

Alternative Investment Vehicle

Source: ILPA

A type of bundled fee that can include any combination of investment management fees, transaction costs, custody fees, et administrative fees. All-in fees are typically offered in certain jurisdictions where asset management, brokerage, and custody services are offered by the same company.

Source: GIPS

The amount of securities assigned to an investor, broker, or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process depending on market demand for the securities.

Source: ILPA

This term describes non-traditional asset classes. They include private equity, venture capital, hedge funds and real estate. Alternative assets are generally more risky than traditional assets, but they should, in theory, generate higher returns for investors.

Source: ILPA

The institute governs the practice of public accountancy except for standards related to the audit of public companies, which are defined by the Public Company Accounting Oversight Board (PCAOB) http://www.aicpa.org

Source: ILPA

Anti-Money Laundering Task Force

Source: esma

An Accounting procedure that gradually reduces the book value of a tangible or a definite intangible asset through periodic charges to income.

Source: ILPA

A tax designed to prevent wealthy investors from using tax shelters to avoid income tax. The calculation of the AMT takes into account tax preference items.

Source: ILPA

Capital raised for a private company from independently wealthy investors. This capital is generally used as seed financing.

Source: ILPA

Organizations, funds and networks formed for the specific purpose of facilitating angel investments in start-up companies.

Source: ILPA

A person who provides backing to very early-stage businesses or business concepts. Angel investors are typically entrepreneurs who have become wealthy, often in technology-related industries. A high net worth individual active in venture financing, typically participating at an early stage of growth. Also known as an informal investor.

Source: ILPA

A separate fund formed by the LPs of a fund to provide a pool of top-up capital when the reserves of the fund have proved inadequate, with the aim of avoiding the issues raised by cross-fund investing.

Source: ILPA

Contractual measures that allow investors to keep a constant share of a firm's equity in light of subsequent equity issues. These may give investors preemptive rights to purchase new stock at the offering price. [See Full Ratchet and weighted Average]

Source: ILPA

Accounting Regulatory Committee

Source: esma

Usually an outsider hired by a syndicate of angel investors to perform due diligence on investment opportunities and coordinate allotment of investment duties among members. Archangels typically have no financial commitment to the syndicate.

Source: ILPA

Loan, typically from a commercial bank, that is backed by asset collateral, often belonging to the entrepreneurial firm or the entrepreneur.

Source: ILPA

A company perceived to have poor management or poor economic performance is sometimes taken over by investors with the intent of breaking it up and selling all or part of its assets. Asset strippers look for companies whose composite parts are worth more than the current value of the company as a whole. Asset stripping goes much further than the process of restructuring which new owners can sometimes impose, as restructuring has the long-term goal of creating a healthy business. While uncontroversial when a company is seen as failing beyond rescue, when an apparently healthy company is the target, the process is much criticised, with investors accused of destroying a viable business for a fast profit. The term has acquired such negative connotations that few investors would use it to describe their own activities.

Source: europarl

The Attributable Enterprise Value is the Adjusted Enterprise Value attributable to the financial instruments held by the Fonds and other financial instruments in the entity that rank alongside or beneath the highest-ranking instrument of the Fonds.

Source: IPEV

Assets Under Management

Source: esma

Auditing Regulatory Committee

Source: esma

Immediate conversion of an investor's priority shares to ordinary shares at the time of a company's underwriting before an offering of its stock on an exchange.

Source: ILPA

The dollar value of total capital invested divided by the total number of investee firms in a given period.

Source: ILPA

The arithmetic mean of the internal rate of return.

Source: ILPA

A financing event whereby professional investors such as venture capitalists are sufficiently interested in a company to provide additional funds after the "A" round of financing. Subsequent rounds are called "C", "D", and so on.

Source: ILPA

The process of using the observed value of an Investment as implied by a sale, liquidity event (e.g. an IPO) or other material change in facts with respect to the Investment, related Investments, or the Enterprise, to assess the Fair Value estimated at an earlier Measurement Date (or Measurement Dates).

Source: IPEV

A condensed financial statement showing the nature and amount of a company's assets, liabilities, and capital on a given date.

Source: ILPA

A private equity fund strategy whereby a wide range of investment targets is pursued, as distinct from a Specialized Fund.

Source: ILPA

An inability to pay debts. Chapter 11 of the bankruptcy code deals with reorganization, which allows the debtor to remain in business and negotiate for a restructuring of debt.

Source: ILPA

Investment strategy by limited partners that primarily make commitments to buyout firms on (1) the micro/small and (2) the large/mega ends of the market; while mostly eschewing the vast array of middle-market opportunities.

Source: ILPA

A no-agreement alternative reflecting the course of action a party to a negotiation will take if the proposed deal is not possible.

Source: ILPA

An offer made directly to the Board of Directors of a target company. Usually made to increase the pressure on the target with the threat that a tender offer may follow.

Source: ILPA

A point of reference against which the composite’s or pooled fund’s returns or risk are compared.

Source: GIPS

General information regarding the investments, structure, and characteristics of the benchmark. The description must include the key features of the benchmark or the name of the benchmark for a readily recognized index or other point of reference.

Source: GIPS

Comparing returns of a portfolio to the returns of its peers; in private equity, fund performance is benchmarked against a sample of funds formed in the same vintage year with the same investment focus.

Source: ILPA

An offering in which the investment banker agrees to distribute as much of the offering as possible, and return any unsold shares to the issuer.

Source: ILPA

An adjustment that adds a discount or premia to the quoted price of a security because the normal daily trading volume, on the exchange where the security trades, is not sufficient to absorb the quantity held by the Fonds. Blockage Factors are not permitted under US GAAP or IFRS.

Source: IPEV

A common term that refers to laws passed by various states to protect the public against securities fraud. The term originated when a judge ruled that a stock had as much value as a patch of blue sky.

Source: ILPA

Book value of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share.

Source: ILPA

Means of financing a small firm by employing highly creative ways of using and acquiring resources without raising equity from traditional sources or borrowing money from the bank.

Source: ILPA

Requires the party responsible for a break-up in an acquisition to pay the other party a negotiated amount of liquidated damages.

Source: ILPA

Capital provided on a short-term basis to a company prior to its going public or its next major private equity transaction. A limited amount of equity or short-term debt financing typically raised within 6-18 months of an anticipated public offering or private placement meant to "bridge" a company to the next round of financing.

Source: ILPA

A pooled fund that is regulated under a framework that would permit the general public to purchase or hold the pooled fund’s shares and is not exclusively offered in one-on-one presentations.

Source: GIPS

A type of anti-dilution mechanism. A weighted average ratchet adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received. Investor A's preferred stock is repriced to a weighed average of investor A's price and investor B's price. A broad-based ratchet uses all common stock outstanding on a fully diluted basis (including all convertible securities, warrants and options) in the denominator of the formula for determining the new weighed average price. Compare Narrow-Based Weighted Average ratchet and Chapter 2.9.4.d.ii of the Encyclopedia.

Source: ILPA

Private individuals or firms retained by early-stage companies to raise funds for a finder's fee. (compare, broker-dealer)

Source: ILPA

A type of bundled fee that can include any combination of investment management fees, transaction costs, custody fees, et administrative fees. All-in fees are typically offered in certain jurisdictions where asset management, brokerage, and custody services are offered by the same company.

Source: GIPS

Extraordinary dilution, by reason of a round of financing, of a non-participating investor's percentage ownership in the issuer.

Source: ILPA

The rate at which a company expends net cash over a certain period, usually a month.

Source: ILPA

A vehicle established by Congress to allow smaller, retail investors to participate in and benefit from investing in small private businesses as well as the revitalization of larger private companies.

Source: ILPA

A document that describes the entrepreneur's idea, the market problem, proposed solution, business and revenue models, marketing strategy, technology, company profile, competitive landscape, as well as financial data for coming years. The business plan opens with a brief executive summary, most probably the most important element of the document due to the time constraints of venture capital funds and angels.

Source: ILPA

Financing provided to acquire a company. It may use a significant amount of borrowed capital to meet the cost of acquisition. Typically by purchasing majority or controlling stakes.

Source: Invest Europe

A specialized form of private equity, characterized chiefly by risk investment in established private or publicly listed firms that are undergoing a fundamental change in operations or strategy (see: Event Transaction, Middle Market). Buyout funds are often called such, even if their mandates are not exclusively buyout-related.

Source: ILPA

Fonds acquiring companies by purchasing majority or controlling stakes, financing the transaction through a mix of equity and debt.

Source: Invest Europe

Compound Annual Growth Rate. The year over year growth rate applied to an investment or other aspect of a firm using a base amount.

Source: ILPA

The right to buy a security at a given price (or range) within a specific time period.

Source: ILPA

The amount of capital available to a fund management team for venture investments. The total dollar value of capital resources, both invested and un-invested, in a private equity fund or market as a whole.

Source: ILPA

The total dollar value of Capital Under Management less those resources that have already been invested by a private equity fund. Also known as liquidity. In the case of Labour-sponsored Venture Capital Corporations, reserves required by statutes are not included in liquidity calculations.

Source: ILPA

Also known as a draw down - When a venture capital firm has decided where it would like to invest, it will approach its investors in order to "draw down" the money. The money will already have been pledged to the fund but this is the actual act of transferring the money so that it reaches the investment target.

Source: ILPA

Resources flowing from individual, institutional and other external sources to private equity funds.

Source: ILPA

The denominator of the component return calculation, defined as the “weighted-average equity” (weighted-average capital) during the measurement period. Capital employed does not include any income return or capital return earned during the measurement period. Beginning capital is adjusted by weighting the external cash flows that occurred during the period.

Source: GIPS

The difference between an asset's purchase price and selling price, when the selling price is greater. Long-term capital gains (on assets held for a year or longer) are taxed at a lower rate than ordinary income. The proceeds obtained on the sale of assets.

Source: ILPA

The change in value of the real estate investments and cash and/ or cash equivalent assets held throughout the measurement period, adjusted for all capital expenditures (subtracted) and net proceeds from sales (added). The capital return is computed as a percentage of the capital employed. Also known as “capital appreciation return” or “appreciation return.”

Source: GIPS

Also called a "Cap Table", this is a table showing the total amount of the various securities issued by a firm. This typically includes the amount of investment obtained from each source and the securities distributed - e.g. common and preferred shares, options, warrants, etc. - and respective capitalization ratios.

Source: ILPA

To record an outlay as an asset (as opposed to an Expense), which is subject to depreciation or amortization.

Source: ILPA

A venture capital firm owned by a larger financial institution, such as a bank.

Source: ILPA

ILPA: A bonus entitlement accruing to an investment fund's management company. Carried interest becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate, if applicable. (Varies according to each unique Limited Partnership Agreement)

Invest EUROPE: A share of the gains of the fund which accrue to the GP/Manager. The calculation of carried interest is set out in the fund formation documents. The GP is required to invest in the fund in order to be entitled to receive carried interest. Carried interest is generally regarded as the main incentive to the GP and is a key mechanism for aligning the GP and LP interests in a fund. Carried interest is typically a fixed percentage of the fund’s net gains. Fund documents typically specify the “waterfall” of fund distributions between the GP and LPs, setting out when the carried interest is payable to the GP. Generally, carried interest is payable to the GP after LPs have been repaid an amount equal to their drawn down commitments plus a “preferred return.” Thereafter, the GPs typically have the right to “catch-up” their percentage share of distributions made to LPs that represent the preferred return, before distributions are shared in the intended ratio between the LPs and GP. Carried interest is sometimes referred to as “carry”.

GIPS: The profits that the general partner is allocated from the profits on the investments made by the investment vehicle. Also known as “carry” or “promote".

Source: ILPA, Invest EUROPE, GIPS

The amount of carried interest payable accrued for payment to the General Partner.

Source: ILPA

Information about the features of the carried interest calculation, such as the hurdle rate, crystallization schedule, et high watermark.

Source: GIPS

The amount of carried interest earned by the General Partner, regardless of payment.

Source: ILPA

The amount of carried interest in escrow as of the current period.

Source: ILPA

The amount of carried interest paid as of the current period.

Source: ILPA

A portion of a portfolio that is by itself representative of a distinct investment strategy. It may be used to create a track record for a narrower mandate from a multiple-strategy portfolio managed to a broader mandate.

Source: GIPS

The amount of cash available to a company at a given point in time.

Source: ILPA

This is a common term of the private equity partnership agreement. Once the general partner provides its limited partners with their preferred return, if any, it then typically enters a catch-up period in which it receives the majority or all of the profits until the agreed upon profit-split, as determined by the carried interest, is reached.

Source: ILPA

Central Counterparty Clearing

Source: esma

Collateralized Debt Obligations

Source: esma

Credit Default Swaps

Source: esma

Standing Committee for Market and Economic Analysis

Source: esma

Central Ratings Repository

Source: esma

Commodity Futures Trading Commission

Source: esma

A clause in a business contract which stipulates that if ownership of a majority of the equity of a company changes hands, then the other party to the contract has a right to cancel, usually without liability for paying any compensation.

Source: ILPA

The part of the Bankruptcy Code that provides for reorganization of a bankrupt company's assets.

Source: ILPA

The part of the Bankruptcy Code that provides for liquidation of a company's assets.

Source: ILPA

A barrier against information flows between different divisions or operating groups within banks and securities firms. Examples include a policy barrier between the trust department from making investment decisions based on any substantive inside information that may come into the possession of other bank departments. The term also refers to barriers against information flows between corporate finance and equity research and trading operations.

Source: ILPA

A reduction in the likelihood that one or more of the firm's claimants will be fully repaid, including time value of money considerations.

Source: ILPA

ILPA: A clawback obligation represents the general partner's promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. Generally, this means that the general partner may not keep distributions representing more than a specified percentage (e.g., 20%) of the fund's cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund's limited partners an amount equal to what is determined to be "excess" distributions.

Invest EUROPE: GP clawback is the repayment of any excess carried interest received. It is designed to protect LPs and requires those who receive carried interest to return amounts received, in excess of the amount they should have received. The mechanisms used to achieve such repayment include the use of escrow arrangements (where a certain portion of the carried interest is put into an escrow account to safeguard the clawback obligation), periodic or annual true-up mechanisms or personal guarantees by the ultimate recipients of the carried interest. Note that a “true-up” is a calculation to determine how much carried interest is due to the GP based on all cash flows to the date of calculation. An “interim true-up”, generally only seen in deal-by-deal distribution models, is one which is calculated during the life of the fund and takes into account the value of unrealised investments. A “final true-up” takes place either at the end of the life of the fund, when all proceeds have been distributed, or at such later time as investors are required to return distributions to the fund pursuant to an LP clawback. If the amount of carried interest due to the GP, based on the true-up calculation, is less than the amount the GP has actually received, then the excess amount is required to be returned to LPs. An LP clawback is a mechanism which requires LPs to return distributions to cover potential fund liabilities, including indemnification obligations, and can be payable after the end of the life of the fund.

GIPS: The repayment of previously earned performance-based fees resulting from subsequent underperformance.

Source: ILPA, Invest EUROPE, GIPS

Guarantees that the stated profit allocation defined in the LPA is met at the end of a partnership's term with respect to the Limited Partners.

Source: ILPA

IPLA : A type of fund that has a fixed number of shares outstanding, which are offered during an initial subscription period, similar to an initial public offering. After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock. The market price of a closed-end fund fluctuates in response to investor demand as well as changes in the values of its holdings or its Net Asset Value. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis.

Europarl : Like a company, this type of fund issues a set number of shares in an initial public offering and they trade on an exchange. Its share price is determined not by the total value of the assets it holds, but by investor demand for the fund. Because an investor pulling out of a closed-end fund must sell its share of the fund on the market to another buyer, the fund's manager is not faced with the prospect of repaying large sums to his investors himself. In difficult times the fund manager can therefore continue taking more long-term decisions than an open-ended fund manager. Being quoted on stock markets, closed-ended funds have more reporting requirements than open-ended funds.

GIPS : A pooled fund that is not open for subscriptions and/or redemptions.

Source: ILPA

An investment event occurring after the required legal documents are implemented between the investor and a company and after the capital is transferred in exchange for company ownership or debt obligation.

Source: ILPA

ILPA : The syndication of a private equity financing round or an investment by individuals (usually general partners) alongside a private equity fund in a financing round. Two or more investors in a given transaction. Also known as syndication. The average rate of co-investment is the total number of investments made in the total number of deals in a given period.

Invest EUROPE : In relation to an LP co-investment, this is a co-investment by an LP in a portfolio company alongside a fund, where the LP is an investor in such fund. The term co-investment may also be used to refer to an external syndication of a private equity financing round. In contrast, the terms “consortium deal” or “club deal” are typically used to describe a situation where two or more funds with different GPs work together to acquire a stake in a portfolio company.

Source: ILPA

Allows investors to sell their shares of stock in the same proportions and for the same terms as the founders, managers, or other investors, should any of those parties receive an offer.

Source: ILPA

The Invest Europe Code of Conduct, which is as follows:
1. Act with integrity
2. Keep your promises
3. Disclose conflicts of interest
4. Act in fairness
5. Maintain confidentiality
6. Do no harm to the industry Compliance with the Code is mandatory for all Invest Europe members and it is expected that the member procures that its affiliates working with it will also adhere to the Code.

Source: Invest EUROPE

Agreed upon adjustments in the number of shares offered in a stock-for-stock exchange to account for price fluctuations before the completion of the deal.

Source: ILPA

European Commission

Source: esma

The period of time within which the fund can make investments as established in the LPA for the fund.

Source: ILPA

ILPA: The total dollar amount of capital pledged to a private equity fund.

GIPS: Pledges of capital to an investment vehicle by investors (limited partners and the general partner) or the firm. Committed capital is typically drawn down over a period of time. Also known as “commitments".

Source: ILPA, GIPS

Capital committed by investors. Cash to the maximum of these commitments may be requested or drawn down by the private equity managers usually on a deal-by-deal basis. This amount is different from invested funds for three reasons. First, most partnerships will initially invest only between 80% and 95% of committed funds (possibly even less). Second, it may be necessary in early years to deduct the annual management fee that is used to cover the cost of operation of a fund. Third, payback to investors usually begins before the final draw down of commitments has taken place. To the extent that capital invested does not equal capital committed, limited partners will have their private equity returns diluted by the much lower cash returns earned on the uninvested portion. Avoiding this situation is the main reason for the Partners Group over-commitment model, which aims to keep Partners Group products as close 100% invested as possible.

Source: ILPA

A unit of ownership of a corporation. In the case of a public company, the stock is traded between investors on various exchanges. Owners of common stock are typically entitled to vote on the selection of directors and other important events and in some cases receive dividends on their holdings. Investors who purchase common stock hope that the stock price will increase so the value of their investment will appreciate. Common stock offers no performance guarantees. Additionally, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Source: ILPA

Le redemption of private stock by the management of a Portfolio Company. This is a common Exit Mechanism for private equity funds. The redemption of private of restricted holdings by the portfolio company itself. In essence the company is buying out the VC's interest.

Source: ILPA

Le capital returns and income returns of a real estate composite, real estate pooled fund, or a benchmark.

Source: GIPS

An aggregation of one or more portfolios that are managed according to a similar investment mandate, objective, or strategy.

Source: GIPS

The date when the firm first groups one or more portfolios to create a composite. The composite creation date is not necessarily the same as the composite inception date.

Source: GIPS

Detailed criteria that determine the assignment of portfolios to composites. Criteria may include, but are not limited to, investment mandate, style or strategy, asset class, the use of derivatives, leverage and/or hedging, targeted risk metrics, investment constraints or restrictions, and/or portfolio type (e.g., segregated account or pooled fund; taxable versus tax exempt).

Source: GIPS

General information regarding the investment mandate, objective, or strategy of the composite. The composite description may be more abbreviated than the composite definition but must include all key features of the composite and must include enough information to allow a prospective client to understand the key characteristics of the composite’s investment mandate, objective, or strategy, including:

• The material risks of the composite’s strategy.

• How leverage, derivatives, and short positions may be used, if they are a material part of the strategy.

• If illiquid investments are a material part of the strategy.

Source: GIPS

The initial date of the composite’s track record.

Source: GIPS

The date that the last portfolio exits a composite, or the date that the firm no longer manages the strategy for segregated accounts or offers the strategy to prospective clients.

Source: GIPS

Also called a leveraged rollup, this is an investment strategy in which a leveraged buyout (LBO) firm acquires a series of companies in the same or complementary fields, with the goal of becoming a dominant regional or nationwide player in that industry. In some cases, a holding company will be created to acquire the new companies. In other cases, an initial acquisition may serve as the platform through which the other acquisitions will be made.

Source: ILPA

The total capital that a Limited Partner paid into the fund.

Source: ILPA

The number of shares of stock into which a convertible security may be converted. The conversion ration equals the par value of the convertible security divided by the conversion price.

Source: ILPA

Rights by which preferred stock "converts" into common stock. Usually, one has this right at any time after making an investment. Company may want rights to force a conversion upon an IPO; upon hitting of certain sales or earnings' targets, or upon a majority or supermajority vote of the preferred stock. Conversion rights may carry with them anti-dilution protections.

Source: ILPA

A bond, debenture or preferred stock that is exchangeable for another type of security (usually common stock) at a pre-stated price. Convertibles are appropriate for investors who want higher income, or liquidation preference protection, than is available from common stock, together with greater appreciation potential than regular bonds offer.(See Common Stock, Dilution, et Preferred Stock).

Source: ILPA

The document prepared when a corporation is formed. The Charter sets forth the objectives and goals of the corporation, as well as a complete statement of what the corporation can and cannot do while pursuing these goals.

Source: ILPA

A private equity fund that is a division or subsidiary of a financial or industrial corporation.

Source: ILPA

Corporations manufacturing products or delivering non-financial services.

Source: Invest Europe

Venture capital provided by [in-house investment funds of] large corporations to further their own strategic interests.

Source: ILPA

A legal, taxable entity chartered by a state or the federal government. Ownership of a corporation is held by the stockholders. Two forms: "C Corp." and "S Corp." - the latter of which provides flow-through taxation.

Source: ILPA

A protective clause in an agreement.

Source: ILPA

The Capital Pool Company program is a corporate finance tool for emerging companies offered through the TSX Venture Exchange. The CPC Program pairs an eligible private company with a public Capital Pool Company which serves as the vehicle for taking the private company public.

Source: ILPA

Committee on Payment and Settlement Systems

Source: esma

Credit Rating Agencies

Source: esma

Capital Requirements Directive

Source: esma

A Private Capital fund that invests in fixed income Investments. A Credit Fund may invest in short-term or long-term bonds, securitised products, instruments or debt.

Source: IPEV

Where a firm invests in the same company at different times from different funds, i.e., uses their current fund towards a financing round in a company which forms part of the portfolio of one of their earlier funds.

Source: ILPA

The point in time when the firm is entitled to receive the performance-based fee and the fee is effectively earned.

Source: GIPS

Central Securities Depositories

Source: esma

Dividends that accrue at a fixed rate until paid are "Cumulative Dividends" which are payments to shareholders made with respect to an investor's Preferred Stock. Generally, holders of Preferred Shares are contractually entitled to receive dividends prior to holders of Common Stock. Dividends can accumulate at a fixed rate (for example 8%) or simply be payable as and when determined by a company's Board of Directors in such amount as determined by the board. Because venture backed companies typically need to conserve cash, the use of Cumulative Dividends is customary with the result that the Liquidation Preference increases by an amount equal to the Cumulative Dividends. Cumulative Dividends are often waived if the Preferred Stock converts to Common Stock prior to an IPO but may be included in the aggregate value of Preferred Stock applied to the Conversion Ratio for other purposes. Dividends that are not cumulative are generally called "when, as and if declared dividends."

Source: ILPA

A stock having a provision that if one or more dividend payments are omitted, the omitted dividends (arrearage) must be paid before dividends may be paid on the company's common stock.

Source: ILPA

When shareholders have the right to pool their votes to concentrate them on an election of one or more directors rather than apply their votes to the election of all directors. For example, if the company has 12 openings to the Board of Directors, in statutory voting, a shareholder with 10 shares casts 10 votes for each opening (10x12= 120 votes). Under the cumulative voting method however, the shareholder may opt to cast all 120 votes for one nominee (or any other distribution he might choose). Compare Statutory Voting.

Source: ILPA

The current three month quarterly period.

Source: ILPA

The fee payable to the custodian for the safekeeping of portfolio assets. Custody fees are considered to be administrative fees and typically contain an asset-based portion and a transaction-based portion. The custody fee may also include charges for additional services, including accounting, securities lending, and/or performance measurement. Custodial fees that are charged per transaction should be included in the custody fee and not included as part of transaction costs.

Source: GIPS

See: Financings and Investments.

Source: ILPA

The measure of the number of potential investments that a fund reviews in any given period.

Source: ILPA

An Agreement made between the investor and the company defining the rights and obligations of the parties involved. The process by which one arrives at the final term and conditions of the investment.

Source: ILPA

Interest-bearing securities that include senior debt, mezzanine loans, shareholder loans, etc. Debt Investments may include a cash pay coupon, payment in kind interest, and/or equity enhancements such as warrants.

Source: IPEV

The amount of the management fee waived.

Source: ILPA

A letter sent by the SEC to the issuer of a new issue regarding omissions of material fact in the registration statement.

Source: ILPA

Contemplate that the company must initiate and pursue the registration of a public offering including, although not necessarily limited to, the shares proffered by the requesting shareholder(s).

Source: ILPA

This is a legally separate organisation where the formal documents showing who owns shares, bonds, etc. can be kept safely. A depositary generally has three core functions: the safe-keeping of the assets of the fund (the depositary holds the title of the assets when they are transferable instruments such as shares, or operates as a book-keeper complementing a broker’s job when it comes to derivatives); the day-to-day administration of the assets of the fund (the depositary receives the income generated by the assets); the control of the fund's operation (compliance with investment policies, notably proper creation/redemption/cancellation of the units/shares issued to the investors)

Source: europarl

An expense recorded to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing the amount of a company's reported earnings.

Source: ILPA

Derivatives are financial instruments based on a contract between two or more parties. As their name indicates, their value is derived from other products since the fluctuations in these underlying products affect the resulting value of the derivative. Derivatives were created centuries ago to protect intensive users of a certain product from severe price movements. Thus, airlines buy fuel futures contracts (a type of derivative) to allow them to be certain of the price they will pay for airline fuel in a year's time. Without such futures, business decisions could not be made within a predictable environment. Derivatives are also used to insure against fluctuations in exchange rates, interest rates, as well as share prices and, more recently, the risk of a default on bonds (credit default swaps or CDS). Derivatives can be traded on markets before their expiration date in the same way as shares in a company. This has led them to be used as a speculative instrument. The latest case making the headlines related to the market activity in CDS tied to Greek government bonds. Derivatives can be traded privately ("over the counter" or OTC) or publicly through dedicated exchange platforms such as Eurex or the NYSE Euronext. For exchange-traded derivatives, the market price is usually transparent. However, complications can arise with OTC contracts, as trading is handled manually, with little opportunity for those other than the direct participants to learn the prices involved or the trades undertaken. In particular with OTC contracts, there is no central exchange to collate and disseminate prices. This lack of transparency as to, effectively, who owes what to whom, has made judging the value and even solvency of some financial firms extremely complex and has led to calls to limit the trade in OTC derivatives.

Source: europarl

A reduction in the percentage ownership of a given shareholder in a company caused by the issuance of new shares.

Source: ILPA

Applies to convertible securities. Standard provision whereby the conversion ratio is changed accordingly in the case of a stock dividend or extraordinary distribution to avoid dilution of a convertible bondholder's potential equity position. Adjustment usually requires a split or stock dividend in excess of 5% or issuance of stock below book value. Share Purchase Agreements also typically contain anti-dilution provisions to protect investors in the event that a future round of financing occurs at a valuation that is below the valuation of the current round.

Source: ILPA

Investments made directly in companies rather than investments made in fund investment vehicles or cash and/or cash equivalents.

Source: GIPS

Person elected by shareholders to serve on the board of directors. The directors appoint the president, vice president and all other operating officers, and decide when dividends should be paid (among other matters).

Source: ILPA

Le investments by funds into their portfolio companies. The actual dollar amount flowing from a private equity fund or funds to a company in a given transaction.

Source: ILPA

A booklet outlining the risk factors associated with an investment.

Source: ILPA

Period in which the general partners focus on realizing returns on the fund's assets.

Source: ILPA

A unit, division, department, or office that is organizationally and functionally segregated from other units, divisions, departments, or offices and that retains discretion over the assets it manages and that should have autonomy over the investment decision making process. Possible criteria for determining this status include:

• Being a legal entity.

• Having a distinct market or client type (e.g., institutional, retail, or private client).

• Using a separate and distinct investment process.

Source: GIPS

Corporate bonds of companies that have either filed for bankruptcy or appear likely to do so in the near future. The strategy of distressed debt firms involves first becoming a major creditor of the target company by snapping up the company's bonds at pennies on the dollar. This gives them the leverage they need to call most of the shots during either the reorganization, or the liquidation, of the company. In the event of a liquidation, distressed debt firms, by standing ahead of the equity holders in the line to be repaid, often recover all of their money, if not a healthy return on their investment. Usually, however, the more desirable outcome is a reorganization, which allows the company to emerge from bankruptcy protection. As part of these reorganizations, distressed debt firms often forgive the debt obligations of the company, in return for enough equity in the company to compensate them. (This strategy explains why distressed debt firms are considered to be private equity firms).

Source: ILPA

A forced liquidation or distress sale (i.e., a forced transaction) is not an Orderly Transaction and is not determinative of Fair Value. An entity applies judgement in determining whether a particular transaction is distressed or forced.

Source: IPEV

The Ratio of total distributions to Limited Partners to date, to the total committed capital of the fund. As defined in the current GIPS Standards, any recallable distributions should be included in the numerator of this ratio.

Source: ILPA

ILPA : The ratio of money distributed to Limited Partners by the Fonds, relative to contributions. As defined in the current GIPS Standards, any recallable distributions should be included in the numerator of this ratio. Any reinvested capital (resulting from recallable distributions) should be included in the denominator.

GIPS : Since-inception distributions divided by since-inception paid-in capital.

Source: ILPA, GIPS

Invest EUROPE: All amounts returned by the fund to the LPs. This can be in cash, or in shares or securities (in the latter case known as “distribution(s) in-specie”).

ILPA: Cash and/or securities paid out to the Limited Partners from the Limited Partnership.

GIPS: Cash or stock distributed to limited partners (or investors) from an investment vehicle. Distributions are typically at the discretion of the general partner (or the firm). Distributions include both recallable and non-recallable distributions.

Source: Invest EUROPE, ILPA, GIPS

The process of spreading investments among various different types of securities and various companies in different fields.

Source: ILPA

Capital provided to a company to facilitate the sale of its interest in a product, division or subsidiary to another business entity.

Source: ILPA

The payments designated by the Board of Directors to be distributed pro-rata among the shares outstanding. On preferred shares, it is generally a fixed amount. On common shares, the dividend varies with the fortune of the company and the amount of cash on hand and may be omitted if business is poor or if the Directors determine to withhold earnings to invest in capital expenditures or research and development. Dividends can be paid either in cash or in kind, i.e. additional shares of stock. Cumulative - Missed dividend payments that continue to accrue. Non-cumulative - Missed dividend payments that do not accrue. Participating - Dividends which share (participate) with common stock. Non-participating - Dividends which do not share with common stock.

Source: ILPA

Current fair market value plus distributions since inception, less invested capital.

Source: ILPA

A misleading term when compared with time-weighted returns. Simply the calculation of the IRR of a series of fund cashflows, i.e., the compound return over time. This is the classic measure of private equity returns, and is to be commended. Great care should be taken not to confuse this measure with time-weighted returns which, contrary to first impressions, actually means something completely different (and should be avoided at al costs).

Source: ILPA

Issuance of shares at a later date and a lower price than previous investment rounds.

Source: ILPA

A majority shareholders' right, obligating shareholders whose shares are bound into the shareholders' agreement to sell their shares into an offer the majority wishes to execute.

Source: ILPA

Invest EUROPE: LP commitments to a fund are drawn down as required over the life of the fund, to make investments and to pay the fees and expenses and other liabilities of the fund. When LPs are required to pay part of their commitment into the fund, GP issues a drawdown notice. Drawdowns are sometimes referred to as “capital calls”.

ILPA: When used by an investor, the total amount of committed capital which has actually been requested by its private equity funds. When used by a fund, the total amount of committed capital which it has actually drawndown from its investors.

Source: Invest EUROPE, ILPA

A process undertaken by potential investors -- individuals or institutions -- to analyze and assess the desirability, value, and potential of an investment opportunity. The process of assessing the business and financial viability of a potential investment target, as well as the potential terms and conditions of an investment agreement.

Source: ILPA

A state of a company that typically has completed its seed stage and has a founding or core senior management team, has proven its concept or completed its beta test, has minimal revenues, and no positive earnings or cash flows.

Source: ILPA

Capital provided to a young or emerging company to facilitate its growth and development, as illustrated in Seed Financing and Start-up Financing.

Source: ILPA

Venture capital funds focused on investing in companies in the early stages of their lives.

Source: Invest Europe

Seed stage: A developing business entity that has not yet established commercial operations and needs financing for research and product development.

Start-up: A business in the earliest phase of established operations and needs capital for product development, initial marketing and other goals.

Other early stage: A firm that has begun initial marketing and related development and needs financing to achieve full commercial production and sales.

Source: ILPA

A provision which used to be commonplace but is now increasingly rare whereby the buyer of acompany agres to pay the seller a fixed multiple of the actual profits of each of the next two or three years. The alternative is often to try to get certain minimum levels of future profits made the subject of a warranty, but this is now very difficult to achieve except in the case of a forced sale or a classic traditional-style MBO.

Source: ILPA

European Banking Authority

Source: esma

Earnings before interest and tax

Source: IPEV

Earnings before interest, tax, and amortisation

Source: IPEV

ILPA: Earnings Before Interest, Taxes, Depreciation and Amortization: A measure of cash flow calculated as: Revenue - Expenses (excluding tax, interest, depreciation and amortization). EBITDA looks at the cash flow of a company. By not including interest, taxes, depreciation and amortization, we can clearly see the amount of money a company brings in. This is especially useful when one company is considering a takeover of another because the EBITDA would cover any loan payments needed to finance the takeover.

IPEV: Earnings before interest, tax, depreciation, et amortisation

Source: ILPA, IPEV

European Central Bank

Source: esma

Economic and Monetary Affairs Committee of the European Parliament

Source: esma

Economic principle that as the volume of production increases, the cost of producing each unit decreases.

Source: ILPA

European Economic Area

Source: esma

European Enforcers’ Co-ordination Sessions

Source: esma

Economic and Financial Committee

Source: esma

European Financial Reporting Advisory Group

Source: esma

European Insurance and Occupational Pensions Authority

Source: esma

An extremely concise presentation of an entrepreneur's idea, business model, company solution, marketing strategy, and competition delivered to potential investors. Should not last more than a few minutes, or the duration of an elevator ride.

Source: ILPA

European Market Infrastructure Regulation

Source: esma

Capital provided to facilitate the takeover of all or part of a business entity by employees or a labour organization.

Source: ILPA

A plan established by a company whereby a certain number of shares are reserved for purchase and issuance to key employees. Such shares usually vest over a certain period of time to serve as an incentive for employees to build long term value for the company.

Source: ILPA

A trust fund established by a company to purchase stock on behalf of employees.

Source: ILPA

Endowment : An investment fund established by a foundation, university or cultural institution providing capital donations for specific needs or to further a company’s operating process. They are generally structured so that the principal amount invested remains intact (for perpetuity, for a defined period of time or until sufficient assets have been accumulated to achieve a designated purpose).
Foundations : A non-profit organisation through which private wealth is distributed for the public good. It can either donate funds and support other organisations, or provide the sole source of funding for their own charitable activities.

Source:

A commercial company or business financed through debt and equity capital provided by debt holders and owners.

Source: IPEV

ILPA: The total value of a business, the price at which it may be sold. Can be thought of as earnings x PE ratio (or any of the other earnings measures x the appropriate multiple) or as equity value + debt.

IPEV: The Enterprise Value is the total value of the financial instruments representing ownership interests (equity) in a business entity plus the value of its debt or debt-related liabilities, minus any cash or cash equivalents available to meet those liabilities.

Source: ILPA, IPEV

ESG stands for the environmental, social and governance factors that can impact (the performance of) a portfolio company and/or an investment, including the GP itself. It is a phrase commonly used alongside responsible investment.

Source: Invest EUROPE

European Parliament

Source: esma

Ownership interest in a company, usually in the form of stock or stock options.

Source: ILPA

Option for private equity investors to purchase shares at a discount. Typically associated with mezzanine financings where a small number of shares or warrants are added to what is primarily a debt financing.

Source: ILPA

ILPA: ERISA shall mean the United States Employee Retirement Income Security Act of 1974, as amended, including the regulations promulgated there under.

Invest EUROPE : The US Employee Retirement Income Security Act of 1974, as amended.

Source: ILPA, Invest EUROPE

A test that is satisfied if the General Partner determines in its reasonable discretion that Persons that are "benefit plan investors" within the meaning of Section (f)(2) of the Final Regulation constitute or are expected to constitute at least 25 percent in interest of the Limited Partners. Note that the test is 25% of the interests of all the limited partners, which means 20% (+/-) in the partnership as a whole, taking into account the general partner's interest.

Source: ILPA

European Supervisory Authorities

Source: esma

European Securities Committee

Source: esma

European System of Central Banks

Source: esma

European System of Financial Supervision

Source: esma

European Securities and Markets Authority

Source: esma

European Systemic Risk Board

Source: esma

European Union

Source: esma

A generic term for a range of activity of interest to buyout and mezzanine funds. "Event" refers to the nature of the specific business objective that is the basis for financing, such as a Divestiture, Management Buyout and other buyout activity, Merger/Acquisition, Re-capitalization, Restructuring/Turnaround or Succession Plan.

Source: ILPA

This occurs when the company agrees to pay an employee's salary for a number of years, regardless of when termination occurs, the day after he or she is employed or 10 years after.

Source: ILPA

Before the fact.

Source: GIPS

After the fact.

Source: GIPS

The price at which an option or warrant can be exercised.

Source: ILPA

The strategic means by which a private equity fund liquidates its stake in a business and achieves optimal returns. There are multiple exit routes, including Acquisition, Company Buyback, Initial Public Offering, Secondary Purchase and Write-off.

Source: ILPA

A fund's intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio company's shares after an initial public offering (IPO), a sale of the portfolio company or a recapitalization. Exiting climates: The conditions that influence the viability and attractiveness of various exit strategies.

Source: ILPA

The realisation of an investment made by a fund. This will normally take the form of a sale or flotation (IPO) of the portfolio company.

Source: Invest EUROPE

The means by which a private equity firm realizes a return on its investment. Private equity investors generally receive their principal returns via a capital gain on the sale or flotation of investments. Exit methods include a trade sale (most common), flotation on a stock exchange (common), a share repurchase by the company or its management or a refinancing of the business (least common). A Secondary purchase of the LP interest by another private equity firm is becoming an increasingly common phenomenon.

Source: ILPA

Capital provided to a company to facilitate its growth and development objectives.

Source: ILPA

The ratio of total pooled fund expenses to average net assets. The expense ratio should not reflect transaction costs.

Source: GIPS

Capital (cash or investments) that enters or exits a portfolio. Dividend and interest income payments are not considered external cash flows.

Source: GIPS

An assessment of value performed by an independent third party.

Source: GIPS

A procedure in which a firm can sell its accounts receivable invoices to a factoring firm, which pays a percentage of the invoices immediately, and the remainder (minus a service fee) when the accounts receivable are actually paid off by the firm's customers.

Source: ILPA

IPEV: Fair Value is the price that would be received to sell an asset in an Orderly Transaction between Market Participants given current market conditions at the Measurement Date.

GIPS: The amount at which an investment could be sold in an arm’s-length transaction between willing parties in an orderly transaction. The valuation must be determined using the objective, observable, unadjusted quoted market price for an identical investment in an active market on the measurement date, if available. In the absence of an objective, observable, unadjusted quoted market price for an identical investment in an active market on the measurement date, valuation must represent the firm’s best estimate of the fair value. Fair value must include any accrued income.

Source: IPEV, GIPS

An entity that provides services to one or more affluent families, including investment management and other services (accounting, tax, financial and legal advice etc.).

Source: Invest Europe

Financial Accounting Standards Board

Source: esma

Financial Conglomerates Directive

Source: esma

The firm’s current schedule of investment management fees or bundled fees appropriate to prospective clients or prospective investors.

Source: GIPS

The date and underlying holding has been sold or fully realized.

Source: ILPA

An ERISA term, it is the United States Department of Labor's Final Regulation relating to the definition of "plan assets" in (29 C.F.R. ¤2510.3-101).

Source: ILPA

Each transaction involving a private equity fund or funds in a given portfolio company represents one round of financing. Each financing is made up of one or more investments, depending on the presence of co-investors. Financings are also known as deals.

Source: ILPA

A person who helps to arrange a transaction.

Source: ILPA

The entity defined for compliance with the GIPS standards.

Source: GIPS

An early close of part of a round financing upon the agreement of all parties. This is often used as part of a "Rolling closing" strategy.

Source: ILPA

A negotiated obligation of the company or existing investors to offer shares to the company or other existing investors at fair market value or a previously negotiated price, prior to selling shares to new investors.

Source: ILPA

See: New Investment

Source: ILPA

Having a predetermined amount of committed capital.

Source: esma

Having a predetermined, finite investment time horizon.

Source: GIPS

The act of buying shares in an IPO and selling them immediately for a profit. Brokerage firms underwriting new stock issues tend to discourage flipping, and will often try to allocate shares to investors who intend to hold on to the shares for some time. However, the temptation to flip a new issue once it has risen in price sharply is too irresistible for many investors who have been allocated shares in a hot issue.

Source: ILPA

When a firm's shares start trading on a formal stock exchange, such as the NASDAQ or the NYSE. This is probably the most profitable exit route for entrepreneurs and their financial backers.

Source: ILPA

A supplementary round of financing in an existing Portfolio Company that builds on its original financing, generally in line with business growth and development. Venture-backed firms are often engaged in multiple follow-on deals.

Source: ILPA

Companies often require several rounds of funding. If a private equity firm has invested in a particular company in the past, and then provides additional funding at a later stage, this is known as 'follow-on funding'.

Source: ILPA

The period defined in the LPA whereby a fund can complete follow-on investments in underlying holdings.

Source: ILPA

Redemption of convertible debt, convertible preferred stock or common stock on pre-specified terms in situations where the company's value has not appreciated according to the agreed upon plan.

Source: ILPA

A Forced Transaction entails the involuntary sale of assets or securities to create liquidity in the event of an uncontrollable or unforeseen situation. Forced selling is normally carried out in reaction to an economic event, personal life change, company regulation, or legal order.

Source: IPEV

See: Investor Types

Source: ILPA

This is the annual report that most reporting companies file with the Commission. It provides a comprehensive overview of the registrant's business. The report must be filed within 90 days after the end of the company's fiscal year.

Source: ILPA

This is the annual report filed by reporting "small business issuers." It provides a comprehensive overview of the company's business, although its requirements call for slightly less detailed information than required by Form 10-K. The report must be filed within 90 days after the end of the company's fiscal year.

Source: ILPA

The form can be used to register securities for which no other form is authorized or prescribed, except securities of foreign governments or political sub-divisions thereof.

Source: ILPA

This is a simplified optional registration form that may be used by companies that have been required to report under the '34 Act for a minimum of three years and have timely filed all required reports during the 12 calendar months and any portion of the month immediately preceding the filing of the registration statement. Unlike Form S-1, it permits incorporation by reference from the company's annual report to stockholders (or annual report on Form 10-K) and periodic reports. Delivery of these incorporated documents as well as the prospectus to investors may be required.

Source: ILPA

This form may be used by "small business issuers" to register securities to be sold for cash. This form requires less detailed information about the issuer's business than Form S-1.

Source: ILPA

The date a fund registers as a limited partnership.

Source: ILPA

A term imposed on founders of seed and early stage deals in which the founder ownership is subject to a vesting schedule with nothing up front and linear vesting over, typically, four years. The first twelve months ownership is often "cliff" vested after the first year with monthly vesting thereafter. For more mature companies, vesting credit can be applied at the time of investment. The purpose of this term is to protect investors from an early, unplanned exit by the founder and to provide investors with the equity necessary to attract a new management team.

Source: ILPA

Shares owned by a company's founders upon its establishment.

Source: ILPA

The cash flow of a company available to service the capital structure of the firm. Typically measured as operating cash flow less capital expenditures and tax obligations.

Source: ILPA

Financial Stability Board

Source: esma

Financial Services Committee

Source: esma

Financial Stability Table

Source: esma

The sale of a single share at a price less than the favored investors paid reduces the conversion price of the favored investors' convertible preferred stock "to the penny". For example, from $1.00 to 50 cents, regardless of the number of lower priced shares sold.

Source: ILPA

Earnings per share are expressed as if all outstanding convertible securities and warrants have been exercised.

Source: ILPA

The number of shares representing total company ownership, including common shares and current conversion or exercised value of the preferred shares, options, warrants, and other convertible securities.

Source: ILPA

ILPA: The pool of capital established for the purposes of private equity activity. Often a Management Company will be responsible for several funds that may vary according to mandate or investment period.

Invest EUROPE: Fund or private equity fund is the generic term used to refer to any designated pool of investment capital targeted at any stage of private equity investment from start-up to large buyout, including those held by corporate entities, limited partnerships and other investment vehicles, established with the intent to exit these investments within a certain timeframe. A closed-ended Limited Partnership is a common structure used for such a fund, but other legal forms are also used, e.g. FCPR, KG, SICAR, AB, BV and NV, etc.

IPEV: The Fund or Private Capital Fund is the generic term used in these Valuation Guidelines to refer to any designated pool of Investment capital targeted at all types and stages of Private Capital Investment from start-up to large buyout and including infrastructure and private credit Investment. It includes those pools held by corporate entities, limited partnerships, and other Investment vehicles. Institutional and retail investors provide the capital, which can be used, inter alia, to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.

Source: ILPA, Invest EUROPE, IPEV

The age of a fund (in years) from its first takedown to the time an IRR is calculated.

Source: ILPA

A Limited partner's obligation to provide a certain amount of capital to a private equity fund for investments.

Source: ILPA

The entire set of legal documents, including the Limited Partnership Agreement (LPA) or equivalent legally binding document and side letters agreed by the investors and the fund manager. Matters covered in the legal documentation include the establishment of the fund, management, and winding up of the fund and the economic terms agreed between the investors and the fund manager.

Source: Invest EUROPE

The indicated area of specialization of a venture capital fund usually expressed as Balanced, Seed and Early Stage, Later Stage, Mezzanine or Leveraged Buyout (LBO).

Source: ILPA

ILPA : See: Management Company

IPEV : The Fund Manager is responsible for implementing a Fonds’s investing strategy and managing its portfolio trading activities. The Fund Manager is also responsible for providing reporting data to the Fund’s investors.

Source: ILPA, IPEV

ILPA: A fund set up to distribute investments among a selection of private equity fund managers, who in turn invest the capital directly. Fund of funds are specialist private equity investors and have existing relationships with firms. They may be able to provide investors with a route to investing in particular funds that would otherwise be closed to them. Investing in fund of funds can also help spread the risk of investing in private equity because they invest the capital in a variety of funds.

Invest Europe: A private equity fund that primarily takes equity positions in other funds.

Europarl: A fund of funds (FOF) is an investment fund that invests in other funds with the main idea being that of tapping into the expertise of many managers and achieving maximum diversification. The concept is founded on the premise that not all investment managers are good in all markets and that not all managers are successful at all times. There are different types of 'fund of funds', each investing in a different type of collective investment scheme (typically one type per FoF), eg. hedge fund FoF, private equity FoF or investment trust FoF.

Source: ILPA, Invest Europe, Europarl

The total amount of capital committed by the investors of a venture capital fund.

Source: ILPA

ILPA: A professionally managed intermediary vehicle where-in individual and institutional investors allocate or pool assets for subsequent commitment to private equity funds.

IPEV: Fund-of-Funds is the generic term used in these Valuation Guidelines to refer to any designated pool of Investment capital targeted at Investment in underlying Private Capital Funds.

Source: ILPA, IPEV

The activity whereby a private equity fund seeks to raise new Capital Commitments from external sources of supply. In Canada, the most active fund-raisers are LSVCCs and Private-Independent Funds.

Source: ILPA

The process by which money is raised to create a fund. Fonds are typically raised by a team of identified professionals within the GP that may include investor relations, fundraising and investment professionals (together, the “fundraising team”). The fundraising team may choose to work in conjunction with an intermediary (usually called a placement agent or placement adviser) particularly when looking to establish relationships with new LPs, as well as legal and other outside service providers.

Source: Invest EUROPE

ILPA: Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures. GAAP is a combination of authoritative standards set by standard-setting bodies as well as accepted ways of doing accounting.

Esma: Generally Accepted Accounting Principles

Source: ILPA, Esma

Specialist advisers who assist institutional investors in their private equity allocation decisions. Institutional investors with little experience of the asset class or those with limited resources often use them to help manage their private equity allocation. Gatekeepers usually offer tailored services according to their clients' needs, including private equity fund sourcing and due diligence through to complete discretionary mandates. A professional advisor or intermediary operating in the private equity market on behalf of clients, such as institutional investors.

Source: ILPA

Global Depositary Receipt (GDR's). Receipts for shares in a foreign based corporation traded in capital markets around the world. While ADR's permit foreign corporations to offer shares to American citizens, GDR's allow companies in Europe, Asia and the US to offer shares in many markets around the world.

Source: ILPA

ILPA: The managing partner in a private equity management company who has unlimited personal liability for the debts and obligations of the limited partnership and the right to participate in its management. The General Partner is the intermediary between investors with capital and businesses seeking capital to grow. See: Limited Partnership.

GIPS: Typically, the manager of a limited partnership in which the limited partners are the other investors. The general partner earns an investment management fee that may include a percentage of the limited partnership’s profits. (See “carried interest.”)

Invest EUROPE: General Partner (GP) is the term typically used to refer to the different entities and professionals within a private equity firm which source, analyse, negotiate and advise on potential transactions as well as invest and manage the fund. It is this definition which is used for the purposes of this Handbook. More specifically, it means the general partner of a Limited Partnership. The term GP may also be used to refer to the manager or investment adviser of a fund, depending on the fund structure.

Source: ILPA

This is a common term of the private equity agreement. To the extent that the general partner receives more than its fair share of profits, as determined by the carried interest, the general partner clawback holds the individual partners responsible for paying back the limited partners what they are owed.

Source: ILPA

The amount of capital that the fund manager contributes to its own fund in the same way that a limited partner does. This is an important way in which limited partners can ensure that their interests are aligned with those of the general partner. While the U.S. Department of Treasury has removed the legal requirement of the general partner to contribute at least 1 percent of fund capital. A 1 percent general partner contribution remains standard practice, particularly among venture capital funds.

Source: ILPA

Fonds investing in all stages of private equity.

Source: Invest Europe

Capital raised from an LP located in the same country as the fund it commits to is usually considered to be domestically raised according to the Invest Europe classification.

Source: Invest Europe

An advertisement by a GIPS-compliant firm that adheres to the requirements of the GIPS Advertising Guidelines.

Source: GIPS

The form required to be filed with CFA Institute to notify CFA Institute that the firm claims compliance with the GIPS standards.

Source: GIPS

A presentation for a composite that contains all the information required by the GIPS standards and may also include recommended information or supplemental information.

Source: GIPS

A presentation for a pooled fund that contains all the information required by the GIPS standards and may also include recommended information or supplemental information.

Source: GIPS

Either a GIPS composite report or a GIPS pooled fund report

Source: GIPS

This occurs when an employee is required to relinquish unvested stock when terminating his employment contract early.

Source: ILPA

Employment contract of upper management that provides a large payout upon the occurrence of certain control transactions, such as a certain percentage share purchase by an outside entity or when there is a tender offer for a certain percentage of a company's shares. Discussed in more detail at The Executive Employment Agreement.

Source: ILPA

Country, regional, governmental and European agencies or institutions for innovation and development.

Source: Invest Europe

A government-owned private equity fund, usually organized through a federal or provincial agency or crown corporation.

Source: ILPA

Le IRR based upon the performance of the investments, not taking into account management fees or carried interest.

Source: ILPA

The total amount of management fees paid by a Limited Partner, excluding management fee offsets.

Source: ILPA

The return on investments reduced by any transaction costs.

Source: GIPS

A type of private equity investment (often a minority investment) in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of the business.

Source: Invest Europe

Funds that make private equity investments (often minority investments) in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of the business.

Source: Invest Europe

Reaping the benefits of investment in a privately held company by selling the company for cash or stock in a publicly held company, also known as an "exit strategy".

Source: ILPA

The geographical location of a portfolio company's main corporate office.

Source: ILPA

As the name implies, hedge funds were initially designed with the aim of hedging (protecting against) some of the risks inherent in their investments using a variety of methods, including short selling (see below) and derivatives. However, the term "hedge fund" has also come to be applied to funds that do not, in fact, hedge their investments, but which may use “hedging” techniques and a wide range of other investment methods with the aim of increasing the return on their investment. Hedge funds also tend to differ from traditional investment funds in that a performance fee of perhaps 20 per cent of the increase in a fund’s value, if any, is paid to the fund manager. In most jurisdictions hedge funds are not open to general retail investors, but only to a limited range of professional investors or wealthy individuals who meet certain criteria set by regulators. Hedge funds, meanwhile, have until now been exempt from many regulations that govern ordinary investment funds, such as those restricting short selling, the use of derivatives and leverage (see below), and fee structures. The legislation now before the European Parliament aims to bring hedge funds within a more structured regulatory framework.

Source: europarl

In finance, a hedge is undertaken to reduce risk by taking a position in one market in an attempt to offset exposure to price fluctuations in another market. There are many specific financial instruments to accomplish this, the most well known being 'futures contracts' for hedging the values of energy, precious metals, foreign currency, agricultural products and interest rate fluctuations. In these cases a company signs a contract for its future purchase of an essential product at a given price which means its costs for those products are predictable, enabling better planning. For more on this, see the definition of 'derivatives' below. Hedge funds use similar strategies to increase the predictability of their returns and protect themselves from shocks in one of their areas of activity, at a specific moment in time.

Source: europarl

The return or value that a pooled fund or segregated account must exceed for the firm to be entitled to earn a performance-based fee.

Source: GIPS

The general shape and form of a chart showing revenue, customers, cash, or some other financial or operational measure that increases dramatically at some point in the future. Entrepreneurs often develop business plans with hockey stick charts to impress potential investors.

Source: ILPA

Corporation that owns the securities of another, in most cases with voting control.

Source: ILPA

ILPA: The amount of time an investor has held an investment. The period begins on the date of purchase and ends on the date of sale, and determines whether a gain or loss is considered short-term or long-term, for capital gains tax purposes.

Invest EUROPE: The length of time an investment remains in a fund.

Source: ILPA, Invest EUROPE

A newly issued stock that is in great public demand. Technically, it is when the secondary market price on the effective date is above the new issue offering price. Hot issues usually experience a dramatic rise in price at their initial public offering because the market demand outweighs the supply.

Source: ILPA

Use in its commonly accepted sense of a hurdle return, i.e., the lowest possible return which a particular investor will accept. However, also used specifically to describe a return which a GP has to at least equal before any carry is calculated or payable. This mechanism is commonly found in buyout and development capital funds, but rarely in venture funds.

Source: ILPA

ILPA: The internal rate of return that a fund must achieve before its general partners or managers may receive an increased interest in the proceeds of the fund. Often, if the expected rate of return on an investment is below the hurdle rate, the project is not undertaken.

GIPS: Minimum rate of return that a pooled fund or segregated account must exceed in order for the investment manager to be able to accrue a performance-based fee.

Source: ILPA, GIPS

Impact Assessment

Source: esma

International Auditing and Assurance Standards Board

Source: esma

International Accounting Standards Board

Source: esma

International Financial Reporting Standards

Source: esma

International Financial Reporting Standards Interpretations Committee

Source: esma

Investments that may be difficult to sell without a price reduction or that cannot be sold quickly because of a lack of market or ready/willing investors.

Source: GIPS

AC/BU - Acquisition or buyout. BIO - Biotechnology. C - Corporate fund. COMM - Communications and networking. COMP - Computer software. CON - Consumer products and services. ELEC - Electronics and semiconductors. ES - Early stage. EX - Expansion. FI - Foreign investor. G - Government fund. GP - General Partner. INT - Internet specific. IT - Information technology. IN - Institutional investor. LP - Limited Partner. LPA - Limited Partnership Agreement. LS - Life sciences. LSVCC - Labour-sponsored venture capital corporation. MAN - Manufacturing and processing. MED - Medical/health related. MIS - Miscellaneous sectors. OT - Other (i.e. investor type, sector, stage of development). PI - Private independent fund. SE - Seed stage. ST - Start-up. TU - Turnaround. VC - Venture capital.

Source: ILPA

The investment income earned on all investments (including cash and cash equivalents) during the measurement period, net of all non-recoverable expenditures, interest expense on debt, and property taxes. The income return is computed as a percentage of the capital employed.

Source: GIPS

An entity designed to nurture business concepts or new technologies to the point that they become attractive to venture capitalists. An incubator typically provides both physical space and some or all of the services-legal, managerial, and/or technical-needed for a business concept to be developed. Incubators often are backed by venture firms, which use them to generate early-stage investment opportunities.

Source: ILPA

“Captive funds” refers to funds that are 100% owned by the parent organisation, while “independent funds” relates to semi-captive funds (those in which the parent owns less than 100%) as well as wholly independent funds. A fund that is 100% owned by capital markets or individuals is considered independent, so only 100% ownership by an institution qualifies the fund as captive

Source: Invest Europe

Refers to the private equity, venture capital and infrastructure industry, which includes GPs, LPs and the service providers to its participants. For the purposes of this Handbook, “industry” is used as a generic term to refer to and to encompass the full industry, including venture capital, infrastructure and private equity.

Source: Invest EUROPE

See: Angel Investor.

Source: ILPA

Rights granting access to company's information, i.e. inspecting the company books and receiving financial statements, budgets and executive summaries.

Source: ILPA

The date a fund completed its first contribution of capital to an underlying holding.

Source: ILPA

ILPA: The sale or distribution of the privately-held stock of a Portfolio Company on public markets for the first time. This is a common Exit Mechanism for private equity funds, especially venture capital funds. The sale or distribution of a stock of a portfolio company to the public for the first time. IPOs are often an opportunity for the existing investors (often venture capitalists) to receive significant returns on their original investment. During periods of market downturns or corrections the opposite is true.

Esma: Initial Public Offering

Source: ILPA, Esma

Pension funds, insurance companies, endowments, charitable foundations, mutual funds and other non-bank financial institutions that are often key suppliers to private equity funds. Organizations that professionally invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, et endowment funds.

Source: ILPA

The organized market for venture activity, based on an industry of management firms and funds, as distinct from the informal investment market (see: Angel Investors). Venture financing has taken place in Canada for decades, but a core industry emerged for the first time in the early 1980s.

Source: ILPA

A venture's intangible assets, such as patents, copyrights, trademarks, and brand name.

Source: ILPA

A measure of the spread of the annual returns of individual portfolios within a composite. Measures may include, but are not limited to, high/low, range, and standard deviation (asset weighted or equal weighted) of portfolio returns.

Source: GIPS

The discount rate at which the present value of future cash flows of an investment equals to the cost of the investment. It is determined when the net present value of the cash outflows (the cost of the investment) and the cash inflows (returns on the investment) equal zero, with the discount rate equal to the IRR.

Source: ILPA

The total amount of drawndown capital which has actually been invested in companies. In practice, this will be equal to the amount of drawndown capital less amounts which have been used to pay fees, or which are awaiting investment.

Source: ILPA

The term Investee Company refers to a single Enterprise or group of Enterprises in which a Fonds is invested either directly or through a number of dedicated holding companies.

Source: IPEV

ILPA: See: Financings and Investments.

IPEV: An Investment refers to the individual financial instruments held by the Fonds in an Investee Company.

Source: ILPA, IPEV

These are the set of agreements relating to the acquisition of a portfolio company by the fund. They typically include a Share Purchase Agreement, regulating the actual purchase of interests in the company, and ancillary agreements, such as a Shareholders Agreement, setting out the understanding among the portfolio company’s shareholders with respect to the management and governance of the portfolio company post transaction. Investment Agreements may also include the arrangements with the management of the portfolio company. For the purposes of section 3 of this Handbook, reference to Investment Agreement also includes the articles of association of the portfolio company, shareholder loan agreements, investor rights’ agreements and other such agreements between the portfolio company shareholders.

Source: Invest EUROPE

Representatives of financial institutions engaged in the issue of new securities, including management and underwriting of issues as well as securities trading and distribution.

Source: ILPA

It is normal for a GP to have an Investment Committee, which is the board of the GP or a specific body within the GP making the ultimate investment and divestment decisions. It will typically also make ownership-related decisions during the holding period of those investments, including follow-on investment decisions.

Source: Invest EUROPE

Investment Company Act shall mean the Investment Company Act of 1940, as amended, including the rules and regulations promulgated there under.

Source: ILPA

A letter signed by an investor purchasing unregistered long securities under Regulation D, in which the investor attests to the long-term investment nature of the purchase. These securities must be held for a minimum of 1 year before they can be sold.

Source: ILPA

The fee payable to the firm for management of a portfolio. Investment management fees are typically asset based (percentage of assets), performance based (see “performance-based fee”), or a combination of the two but may take different forms as well. Investment management fees also include carried interest.

Source: GIPS

ILPA: Calculation performed by adding the reported value and the distributions received and subsequently dividing that amount by the total capital contributed.

GIPS: Total value divided by since-inception paid-in capital.

Source: ILPA, GIPS

Typically the initial few years of a fund’s term, during which time it is intended that the fund will make its investments.

Source: Invest EUROPE

An investment trust is a form of collective investment found mostly in the United Kingdom which holds a portfolio of securities on behalf of its own shareholders. Because an investment trust is itself a listed company, its shares can be bought and sold in the usual way. An investment trust manager is legally allowed to borrow capital to purchase shares. This leverage may increase investment gains but also increases investor risk. Investment trusts can also invest in unquoted or unlisted companies, which may not be trading on the stock exchange either because they don't wish to or because they do not meet the given criteria. This possibility, combined with the ability to borrow money for investments, can make investment trusts more volatile. Unlike hedge funds, most investment trusts are open to retail/inexperienced investors.

Source: europarl

The key players in the private equity industry, based on particular fund structures and sources of capital supply. In the United States, private equity is dominated by Private-Independent Funds, while Canadian activity is diversified across several major groups. Corporate funds (C): Subsidiaries of financial or industrial corporations. Government funds (G): Agencies or crown corporations owned by government. Institutional investors (IN): Funds managed inside certain large institutions. Retail Funds: Funds (e.g., LSVCCs, PVCCs) established with benefit of government tax credits to individuals. Private-Independent Funds (PI): Funds structured on Limited Partnerships and related vehicles. Foreign investors (FI): Non-resident private equity funds or corporations active in Canada. Other investors (OT): Investors with an interest in specific private equity deals, but without a permanent market presence.

Source: ILPA

International Organisation of Securities Commissions

Source: esma

The reinvestment of assets received as a lump-sum distribution from a qualified tax-deferred retirement plan. Reinvestment may be the entire lump sum or a portion thereof. If reinvestment is done within 60 days, there are no tax consequences.

Source: ILPA

ILPA: Internal Rate of Return. A typical measure of how VC Funds measure performance. IRR is a technically a discount rate: the rate at which the present value of a series of investments is equal to the present value of the returns on those investments.

Invest EUROPE: The Internal Rate of Return or “IRR” is one of the calculations used to measure the return of a private equity fund. IRRs are used in private equity instead of time-weighted returns (“TWRs”), which are more common in other asset classes. Technically, the IRR is defined as the discount rate which, when applied to all the cash flows in the fund and the fair value of the fund’s assets at a point in time, would produce a net present value of zero. In other words, the IRR represents an absolute measure of the cash flow return of a fund at a point in time. It is therefore one of the most common measures for comparing the performance of different funds covering different time periods. The IRR can be calculated on a net basis (meaning net of fees, expenses and carried interest) or a gross basis (meaning before fees, expenses and deduction of carried interest). The IRR is calculated as an annualised compounded rate of return, using actual cash flows and annual valuations.

Source: ILPA, Invest EUROPE

Incentive Stock Option. Plan which qualifying options are free of tax at the date of grant and the date of exercise. Profits on shares sold after being held at least 2 years from the date of grant or 1 year from the date of exercise are subject to favorable capital gains tax rate.

Source: ILPA

The price per share deemed to have been paid for a series of Preferred Stock. This number is important because Cumulative Dividends, Liquidation Preference and Conversion Ratios are all based on Issue Price. In some cases, it is not the actual price paid. The most common example is where a company does a bridge financing (a common way for investors to provide capital without having to value the Company as a whole) and sells debt that is convertible into the next series of Preferred Stock sold by the Company at a discount to the Issue Price.

Source: ILPA

The amount of common shares that a corporation has sold (issued).

Source: ILPA

Refers to the organization issuing or proposing to issue a security.

Source: ILPA

Information Technology

Source: esma

The curve realized by plotting the returns generated by a private equity fund against time (from inception to termination). The common practice of paying the management fee and start-up costs out of the first draw-down does not produce an equivalent book value. As a result, a private equity fund will initially show a negative return. When the first realizations are made, the fund returns start to rise quite steeply. After about three to five years, the interim IRR will give a reasonable indication of the definitive IRR. This period is generally shorter for buyout funds than for early-stage and expansion funds.

Source: ILPA

Professional management attracted by the founder to run the company. Key employees are typically retained with warrants and ownership of the company.

Source: ILPA

The key senior investment professionals actively involved in the sourcing, analysis, negotiation and subsequent monitoring of potential investments made by a fund are typically identified and named in the fund documents as Key Persons. Provisions are made regarding what happens should any of these individuals cease to devote sufficient time to the fund; so-called Key Person provisions.

Source: Invest EUROPE

If a specified number of key named executives cease to devote a specified amount of time to the Partnership, which may include time spent on other funds managed by the manager, during the commitment period, the "key person" clause provides that the manager of the fund is prohibited from making any further new investments (either automatically or if so determined by investors) until such a time that new replacement key executives are appointed. The manager will, however, usually be permitted to make any investments that had already been agreed to be made prior to such date.

Source: ILPA

A professionally managed private equity fund that raises capital on a retail basis from individual Canadians, with the assistance of federal and provincial government tax credits. LSVCCs operate according to some legislative specifications in most Canadian jurisdictions.

Source: ILPA

The level at which the firm determines that an external cash flow may distort the return if the portfolio is not valued and a sub-period return is not calculated. The firm must define the amount in terms of the value of cash/asset flow or in terms of a percentage of the portfolio assets or composite assets. The firm must also determine if a large cash flow is a single external cash flow or an aggregate of a number of external cash flows within a stated period.

Source: GIPS

A fund investment strategy involving financing for the expansion of a company that is producing, shipping and increasing its sales volume. Later stage funds often provide the financing to help a company achieve critical mass in order to position its shareholders for an Exit Event, e.g. an IPO on strategic sale of the company. Also see: Stages of Development.

Source: ILPA

Expansion: An established or near-established company that needs capital to expand its productive capacity, marketing and sales.

Acquisition/Buyout: An established or near-established firm that needs financing to acquire all or a portion of another business entity for growth purposes, such as an Acquisition for Expansion Financing.

Turnaround: An established or near-established company that needs capital to address a temporary situation of financial or operational distress.

Other Stage: Includes Secondary Purchase, or the sale of portfolio assets among investors, and working capital.

Staggered Board: This is an anti-takeover measure in which the election of the directors is split in separate periods so that only a percentage (e.g. one-third) of the total number of directors come up for election in a given year. It is designed to make taking control of the board of directors more difficult.

Source: ILPA

Financing provided for an operating company, which may or may not be profitable. Late stage venture tends to be financing into companies already backed by VCs. Typically in C or D rounds.

Source: Invest Europe

Venture capital funds providing capital for an operating company which may or may not be profitable. Typically in C or D rounds.

Source: Invest Europe

The member of a private equity syndicate that leads other co-investors into successful conclusion of a company financing. Reporting of Lead Investor commenced in January 2004. Also known as a bell cow investor. Member of a syndicate of private equity investors holding the largest stake, in charge of the financing and most actively involved in the overall project.

Source: ILPA

An investment that has a poor or negative rate of return. An old venture capital adage claims that "lemons ripen before plums."

Source: ILPA

Leverage, in general, means using techniques to increase the returns offered by an investment strategy, for example investing borrowed money alongside capital. If the gains from investing the borrowed money are larger than the cost of borrowing, the leverage used pays off a profit. Leverage is attractive to companies because it can increase returns for shareholders and can allow large investments to be made through debt and not by issuing new shares (which would dilute the existing owner’s stake in the company) It can also have tax advantages, since interest payments are deductible from the company’s pre-tax profits, unlike dividend payments to shareholders. If kept at sound levels leverage can therefore contribute to increasing a company's wealth. But if companies borrow too much – become too “highly leveraged” – they can be vulnerable in the event of a crisis or downturn – or simply if their plans turn out to be over-optimistic. This was the case with a number of banks prior to the financial crisis of 2007-2008, with Lehman Brothers for example having 30 times more debt than capital on its books. When profits were not being made through the money borrowed, the interest expense on the vast debt and credit risk of default destroyed all shareholder value. It should be noted that capital requirement rules in themselves do not limit the use a company can make of leverage.

Source: ILPA

A takeover of a company, using a combination of equity and borrowed funds. Generally, the target company's assets act as the collateral for the loans taken out by the acquiring group. The acquiring group then repays the loan from the cash flow of the acquired company. For example, a group of investors may borrow funds, using the assets of the company as collateral, in order to take over a company. Or the management of the company may use this vehicle as a means to regain control of the company by converting a company from public to private. In most LBOs, public shareholders receive a premium to the market price of the shares. A substantially debt-weighted financing of an Acquisition.

Source: ILPA

Category comprising around 90 percent of all start-ups. These firms merely afford a reasonable living for their founders, rather than incurring the risks associated with high growth. These ventures typically have growth rates below 20 percent annually, have five-year revenue projections below $10 million, and are primarily funded internally-only very rarely with outside equity funds.

Source: ILPA

Any pooled fund that is not a broad distribution pooled fund.

Source: GIPS

ILPA: The investors in a limited partnership. (See: Limited Partnership.) Limited partners are not involved in the day-to-day management of the partnership and generally cannot lose more than their capital contribution.

GIPS: An investor in a limited partnership.

Invest EUROPE: A Limited Partner (LP) is an investor in a fund. More specifically, it means the limited partner in a Limited Partnership. LPs in a fund include sophisticated investors, such as pension funds/ retirement systems, insurance companies, experienced high-net-worth individuals and entrepreneurs, sovereign wealth funds, endowment funds, foundations and family offices.

Source: ILPA, GIPS, Invest EUROPE

This is a common term of the private equity partnership agreement. It is intended to protect the general partner against future claims, should the general partner of the limited partnership become the subject of a lawsuit. Under this provision, a fund's limited partners commit to pay for any legal judgment imposed upon the limited partnership or the general partner. Typically, this clause includes limitations in the timing or amount of the judgment, such as that it cannot exceed the limited partners' committed capital to the fund.

Source: ILPA

ILPA: An organization comprised of a general partner, who manages a fund, et limited partners, who invest money but have limited liability and are not involved with the day-to-day management of the fund. In the typical venture capital fund, general partner receives a management fee and a percentage of the profits (or carried interest). The limited partners receive income, capital gains, and tax benefits. A legal fund structure most frequently used by Private-Independent Funds to raise capital from external sources, such as institutional investors. The primary relationship in this structure is the general partner (the fund manager) and the limited partner (the capital source).

GIPS: The legal structure used by many private market investment closed-end pooled funds. Limited partnerships are usually fixed life investment vehicles. The general partner manages the limited partnership pursuant to the partnership agreement.

Invest EUROPE: A legal structure commonly used by many private equity funds. It is used especially when catering for broad categories of international investors looking to make cross-border investments. The partnership is usually a fixed-life investment vehicle, and consists of a general partner (the GP/manager of the fund which has unlimited liability) and limited partners (the LPs which have limited liability and are not involved with the day-to-day operations of the fund).

Source: ILPA, GIPS, Invest EUROPE

The document which constitutes a Limited Partnership. These will be the subject of discussion and negotiation prior to first closing.

Source: ILPA

The method by which sub-period returns are geometrically combined to calculate the period return, or by which periodic returns are geometrically combined to calculate longer-period returns, using the following formula:

Period return = [(1 + R1) × (1 + R2) … (1 + Rn)] – 1

where R1, R2 … Rn are the sub-period or periodic returns for sub-periods or periods 1 through n, respectively.

Source: GIPS

1) The process of converting securities into cash.
2) The sale of the assets of a company to one or more acquirers in order to pay off debts. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Source: ILPA

The amount per share that a holder of a given series of Preferred Stock will receive prior to distribution of amounts to holders of other series of Preferred Stock of Common Stock. This is usually designated as a multiple of the Issue Price, for example 2X or 3X, and there may be multiple layers of Liquidation Preferences as different groups of investors buy shares in different series. For example, holders of Series B Preferred Stock may be entitled to receive 3X their Issue Price, and then if any money is left, holders of Series A Preferred Stock may be entitled to receive 2X their Issue Price and then holders of Common Stock receive whatever is left. The trigger for the payment of the Liquidation Preference is a sale or liquidation of the company, such as a merger or other transaction where the company stockholders end up with less than half of the ownership of the new entity or a liquidation of the company.

Source: ILPA

IPEV: A measure of the ease with which an asset may be converted into cash. A highly liquid asset can be easily converted into cash; an illiquid asset may be difficult to convert into cash. Liquidity represents the relative ease and promptness with which an instrument may be sold when desired.

ILPA: See: Capital Available for Investment.

Source: IPEV, ILPA

An event that allows a VC to realize a gain or loss on an investment. The ending of a private equity provider's involvement in a business venture with a view to realizing an internal return on investment. Most common exit routes include Initial Public Offerings [IPOs], buy backs, trade sales and secondary buy outs.

Source: ILPA

A company owned by "members" who either manage the business themselves or appoint "managers" top run it for them. All members and managers have the benefit of limited liability, and, in most cases, are taxed in the same way as a subchapter S corporation, i.e. flow-through taxation, without having to conform to the S Corporation restrictions.

Source: ILPA

The period of time that certain stockholders have agreed to waive their right to sell their shares of a public company. Investment banks that underwrite initial public offerings generally insist upon lockups of at least 180 days from large shareholders (1% ownership or more) in order to allow an orderly market to develop in the shares. The shareholders that are subject to lockup usually include the management and directors of the company, strategic partners and such large investors. These shareholders have typically invested prior to the IPO at a significantly lower price to that offered to the public and therefore stand to gain considerable profits. If a shareholder attempts to sell shares that are subject to lockup during the lockup period, the transfer agent will not permit the sale to be completed.

Source: ILPA

The point at which 75% of all returns in a group are greater and 25% are lower.

Source: ILPA

The LPAC is typically comprised of a cross-section of LPs in a fund. The role of the LPAC is essentially to be consulted by the GP on material matters affecting the fund and on conflicts of interest. More generally, it acts as a sounding board for the GP.

Source: Invest EUROPE

Mergers and Acquisitions

Source: esma

Market Abuse Directive

Source: esma

Capital provided to facilitate the takeover of all or part of a business entity by a team of managers. A private equity firm will often provide financing to enable current operating management to acquire or to buy at least 50 per cent of the business they manage. In return, the private equity firm usually receives a stake in the business. This is one of the least risky types of private equity investment because the company is already established and the managers running it know the business - and the market it operates in - extremely well.

Source: ILPA

The professional manager of a private equity fund or funds.

Source: ILPA

Invest EUROPE: These are the terms that are used to refer to the fee/profit share paid by the fund to the GP. For the GP to be able to employ and retain staff in order to invest and properly manage the fund until such time as profits are realised, it will typically receive, on a quarterly basis, an advance from LPs to cover the fund’s overhead costs. This management charge, generally funded out of LP commitments, is generally equal to a certain percentage of the committed capital of the fund during the investment period and thereafter a percentage of the cost of investments still held by the fund.

ILPA: The management fee is used to provide the partnership with resources such as investment and clerical personnel, office space and administrative services required by the partnership.

Source: Invest EUROPE, ILPA

The extent to which monitoring, transaction, and other portfolio company related expenses, paid to the General Partner are offset against management fees.

Source: ILPA

The persons who oversee the activities of a venture capital fund.

Source: ILPA

The buyer of the company is its management team.

Source: Invest Europe

A right of an investor to require the company to repurchase some or all of an investor's shares at a stated price at a given time in the future. The purchase price is usually the Issue Price, increased by Cumulative Dividends, if any. Mandatory Redemption may be automatic or may require a vote of the series of Preferred Stock having the redemption right.

Source: ILPA

The total dollar value of all of a company's outstanding shares. It is calculated by multiplying the number of outstanding shares times the current market share price and is often referred to as market cap. The total dollar value of all outstanding shares. Computed as shares multiplied by current price per share. Prior to an IPO, market capitalization is arrived at by estimating a company's future growth and by comparing a company with similar public or private corporations.

Source: ILPA

Buyers and sellers in the Principal (or Most Advantageous) Market for the asset that have the following characteristics:
a. They are independent of each other;
b. They are knowledgeable;
c. They are able to transact; and
d. They are willing to transact, that is, they are motivated but not forced or otherwise compelled to do so.

Source: IPEV

Similar to Lock-Up Agreements and prevents selling company stock for number of predetermined days after a previous stock offering by the company.

Source: ILPA

The price at which investors can buy or sell an investment at a given time multiplied by the quantity held, plus any accrued income.

Source: GIPS

The time required to complete a transaction or sell an Investment. Accounting standards dictate that the Marketability period begins sufficiently in advance of the Measurement Date such that the hypothetical transaction determining Fair Value occurs on the Measurement Date. Therefore, accounting standards do not allow a discount for Marketability when determining Fair Value.

Source: IPEV

The master-feeder fund structure allows fund managers to benefit from the efficiencies of larger pools of finances while providing the flexibility of designing smaller funds, which are tailor-made for different market situations. One or more investment vehicles pool their finances within another vehicle – i.e. there are several smaller feeder funds and one master to which they contribute. This master fund is then responsible for performing all the investments of the assets transferred to it from the feeders. Sometimes, especially when the feeders are hedge funds, this is a way of complying with the distinct legal systems of separate jurisdictions.

Source: europarl

An error in a gips composite report or gips pooled fund report that must be corrected and disclosed in a corrected gips composite report or gips pooled fund report.

Source: GIPS

The date for which the valuation is being prepared, which often equates to the reporting date.

Source: IPEV

An activity that includes corporate finance activities, such as advice on complex financings, merger and acquisition advice (international or domestic), and at times direct equity investments in corporations by the banks.

Source: ILPA

Combination of two or more corporations in which greater efficiency is supposed to be achieved by the elimination of duplicate plant, equipment, and staff, and the reallocation of capital assets to increase sales and profits in the enlarged company. The strategic combination of one business entity with another, often with the assistance of private equity.

Source: ILPA

A specialized form of private equity, characterized chiefly by use of Subordinated Debt, or preferred stock with an equity kicker, to invest largely in the same realm of companies and deals as buyout funds (see: Event Transaction, Middle Market).

Source: ILPA

Refers to the stage of venture financing for a company immediately prior to its IPO. Investors entering in this round have lower risk of loss than those investors who have invested in an earlier round. Mezzanine level financing can take the structure of preferred stock, convertible bonds or subordinated debt.

Source: ILPA

Fonds using a hybrid of debt and equity financing, comprising equity-based options (such as warrants) and lower-priority (subordinated) debt.

Source: Invest Europe

A generic term used to describe the universe of well-established, and mostly private, companies in traditional sectors that form the demand side of much buyout and mezzanine activity.

Source: ILPA

Firms with growth prospects of more than 20 percent annually and five-year revenue projections between $10 million and $50 million. Less than 10 percent of all start-ups annually, these entrepreneurial firms are the backbone of the U.S. economy.

Source: ILPA

Markets in Financial Instruments Directive

Source: esma

The date after which a firm may present only GIPS-compliant performance. Real estate and private equity composites and pooled funds and wrap fee composites have a minimum effective compliance date of 1 January 2006. All other composites and pooled funds have a minimum effective compliance date of 1 January 2000.

Source: GIPS

The return for a period that reflects the change in value and the timing and size of external cash flows.

Source: GIPS

The market that maximises the amount that would be received to sell an asset after taking into account transaction costs and transportation costs.

Source: IPEV

The Most Favoured Nation (or “MFN”) clause is a common protection sought by LPs in which the GP assures the LP that it will also benefit from any provisions granted to other LPs. The MFN provision usually carves out specific provisions that relate to tax or regulatory considerations of individual LPs. The MFN may be found in the constitutional documents of the fund or in side letters agreed between an individual LP and the GP.

Source: Invest Europe

Memorandum of Understanding

Source: esma

Multilateral Trading Facility

Source: esma

A provision, task, or action that is mandatory or required to be followed or performed. (See “require/requirement”)

Source: GIPS

A task or action that is forbidden or prohibited.

Source: GIPS

A mutual fund, or an open-end fund, sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund's outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor usually sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor must buy newly issued shares directly from the fund.

Source: ILPA

Naked short selling is a case of short selling without first arranging to borrow the shares. If the stock is in short supply, finding shares to borrow can be difficult. The seller may also decide not to borrow the shares because of the lending costs. This practice allows an unlimited number of shares to be sold short with the result that a company's share price can be driven down faster than by regular short selling. In 2008 it was argued that naked short selling contributed to the rapid demise of Lehman Brothers and Bear Stearns. As in short selling, naked short selling, notably of shares of financial institutions, faces tightened legislation in view of the recent crisis but rules vary from country to country.

Source: europarl

A type of anti-dilution mechanism. A weighted average ratchet adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received. Investor A's preferred stock is repriced to a weighed average of investor A's price and investor B's price. A narrow-based ratchet uses only common stock outstanding in the denominator of the formula for determining the new weighed average price.

Source: ILPA

The National Association of Securities Dealers. Any mandatory association of brokers and dealers in the over the counter securities business. Created by the Maloney Act of 1938, an amendment to the Securities Act of 1934.

Source: ILPA

An automated information network which provides brokers and dealers with price quotations on securities traded over the counter.

Source: ILPA

National Competent Authorities

Source: esma

An agreement issued by entrepreneurs to potential investors to protect the privacy of their ideas when disclosing those ideas to third parties.

Source: ILPA

IPEV: NAV of a Fonds is the amount estimated as being attributable to the investors in that Fonds on the basis of the Fair Value of the underlying Investee Companies and other assets and liabilities.

ILPA: NAV is calculated by adding the value of all of the investments in the fund and dividing by the number of shares of the fund that are outstanding. NAV calculations are required for all mutual funds (or open-end funds) and closed-end funds. The price per share of a closed-end fund will trade at either a premium or a discount to the NAV of that fund, based on market demand. Closed-end funds generally trade at a discount to NAV.

Source: IPEV, ILPA

Also called the cost of carry or, simply, carry, the difference between the cost of financing the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.

Source: ILPA

The net earnings of a corporation after deducting all costs of selling, depreciation, interest expense and taxes.

Source: ILPA

The dollar-weighted internal rate of return, net of management fees and carried interest generated by an investment in the fund. The return considers the daily timing of all cash flows and cumulative fair stated value, as of the end of the reported period.

Source: ILPA

Management fee net of management fee offsets.

Source: ILPA

An approach used in capital budgeting where the present value of cash inflow is subtracted from the present value of cash outflows. NPV compares the value of a dollar today versus the value of that same dollar in the future after taking inflation and return into account. A firm or project's net contribution to wealth. This is the present value of current and future income streams, minus initial investment.

Source: ILPA

Le gross-of-fees return reduced by investment management fees.

Source: GIPS

The original round of financing in a company. Venture-backed firms typically receive further Follow-on Financing as they grow and develop in portfolios. Also known as a first-time transaction.

Source: ILPA

A stock or bond offered to the public for the first time. New issues may be initial public offerings by previously private companies or additional stock or bond issues by companies already public. New public offerings are registered with the Securities and Exchange Commission.

Source: ILPA

The typical label for any newly organized company, particularly in the context of a leveraged buyout.

Source: ILPA

A no shop, no solicitation, or exclusivity, clause requires the company to negotiate exclusively with the investor, and not solicit an investment proposal from anyone else for a set period of time after the term sheet is signed. The key provision is the length of time set for the exclusivity period.

Source: ILPA

A "no fault divorce" clause permits investors at a time after the final closing date, to remove the general partner of a fund and either terminate the Partnership or appoint a new general partner. This clause covers situations where the general partner has not defaulted or breached the terms and conditions of the Limited Partnership Agreement. Either an ordinary consent or a special consent may be required to effectuate the removal of the general partner and this clause will usually be subject to the general partner receiving compensation for its removal.

Source: ILPA

An investor not considered accredited for a Regulation D offering. (Accredited Investor).

Source: ILPA

An agreement often signed by employees and management whereby they agree not to work for competitor companies or form a new competitor company within a certain time period after termination of employment. Governed by state law.

Source: ILPA

The New York Stock Exchange. Founded in 1792, the largest organized securities market in the United States. The Exchange itself does not buy, sell, own or set prices of stocks traded there. The prices are determined by public supply and demand. Also known as the Big Board.

Source: ILPA

Officially Appointed National Mechanism

Source: esma

Non-cooperative Jurisdictions

Source: esma

An OM is a document issues by or on behalf of a private equity firm with the object of raiding money from the investment community. Sometimes referred to as a Private Placing Memorandum.

Source: ILPA

Total dollar amount raised through an IPO.

Source: ILPA

ILPA: An open-end fund, or a mutual fund, generally sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund's outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor generally sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor generally buys newly issued shares directly from the fund.

GIPS: A pooled fund in which the number of investors is not fixed and the fund is open for subscriptions and/or redemptions.

Europarl: This fund does not have restrictions on the number of shares to be issued. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-ended funds also buy back shares when investors wish to sell. An investor will generally purchase shares in the fund directly from the fund itself rather than from the existing shareholders. The price at which shares in an open-ended fund are issued or can be redeemed will vary in proportion to the value of the fund's assets and will therefore directly reflect the fund's performance. Hedge funds are typically open-ended funds.

Source: ILPA, GIPS, Europarl

The number of shares set aside for future issuance to employees of a private company.

Source: ILPA

An Orderly Transaction is a transaction that assumes exposure to the market for a period prior to the Measurement Date to allow for marketing activities that are usual and customary for transactions involving such assets; it is not a Forced Transaction.

Source: IPEV

A discount from par value of a bond or debt-like instrument. In structuring a private equity transaction, the use of a preferred stock with liquidation preference or other clauses that guarantee a fixed payment in the future can potentially create adverse tax consequences. The IRS views this cash flow stream as, in essence, a zero coupon bond upon which tax payments are due yearly based on "phantom income" imputed from the difference between the original investment and "guaranteed" eventual payout. Although complex, the solution is to include enough clauses in the investment agreements to create the possibility of a material change in the cash flows of owners of the preferred stock under different scenarios of events such as a buyout, dissolution or IPO.

Source: ILPA

A financial institution (other than a bank, endowment, family office, foundation, insurance company or pension fund) managing a pool of capital by investing it across different asset classes with the purpose of generating financial returns. It may include private equity direct funds that occasionally do indirect investments, but excludes fund of funds that are a standalone option.

Source: Invest Europe

The amount of common shares of a corporation which are in the hands of investors. It is equal to the amount of issued shares less treasury stock.

Source: ILPA

ILPA: A market for securities made up of dealers who may or may not be members of a formal securities exchange. The over-the-counter market is conducted over the telephone and is a negotiated market rather than an auction market such as the NYSE.

Esma: Over-The-Counter

Source: ILPA, Esma

Capital raised by private equity funds but as yet uninvested. This can become acute when levels of investment fail to keep pace with levels of fundraising. Overhang will tend to put upward pressure on valuations, raise suspicions that deal quality may be sacrificed in order to put money to work, and may also stretch out the fund cycle.

Source: ILPA

The economic value for which a firm has investment management responsibility. Overlay exposure is the notional value of the overlay strategy being managed, the value of the underlying portfolios being overlaid, or a specified target exposure.

Source: GIPS

A strategy in which the management of a certain aspect of an investment strategy is carried out separately from the underlying portfolio. Overlay strategies are typically designed either to limit or maintain a specified risk exposure that is present in the underlying portfolio or to profit from a tactical view on the market by changing a portfolio’s specified risk exposure.

Source: GIPS

Occurs when demand for shares exceeds the supply or number of shares offered for sale. As a result, the underwriters or investment bankers must allocate the shares among investors. In private placements, this occurs when a deal is in great demand because of the company's growth prospects.

Source: ILPA

In a rights issue, arrangement by which shareholders are given the right to apply for any shares that are not purchased.

Source: ILPA

ILPA: The amount of committed capital a limited partner has actually transferred to a venture fund. Also known as the cumulative takedown amount.

GIPS: Capital inflows to a pooled fund or composite. It includes committed capital drawn down through capital calls and distributions that are subsequently recalled and reinvested.

Source: ILPA, GIPS

The ratio of contributions to date measured against its committed capital.

Source: ILPA

At an equal rate or pace, without preference.

Source: ILPA

A preferred stock in which the holder is entitled to the stated dividend, and also to additional dividends on a specified basis upon payment of dividends to the common stockholders. The preferred stock entitles the owner to receive a predetermined sum of cash (usually the original investment plus accrued dividends) if the company is sold or has an IPO. The common stock represents additional continued ownership in the company.

Source: ILPA

Describes a right of a holder of Preferred Stock to enjoy both the rights associated with the Preferred Stock and also participate in any benefit available to Common Stock, without converting to Common Stock. This may occur with Liquidation Preferences, for example, a series of Preferred Stock may have the right to receive its Liquidation Preference and then also share in whatever money is left to be distributed to the holders of Common Stock. Dividends may also be "Participating" where after a holder of Preferred Stock receives its Cumulative Dividend it also receives any dividend paid on the Common Stock.

Source: ILPA

A nontaxable entity in which each partner shares in the profits, loses and liabilities of the partnership. Each partner is responsible for the taxes on its share of profits and loses.

Source: ILPA

The contract that specifies the compensation and conditions governing the relationship between investors (LP's) and the venture capitalists (GP's) for the duration of a private equity fund's life.

Source: ILPA

Expenses borne by the partnership including costs associated with the organization of the partnership, the purchase, holding or sale of securities, and legal and auditing expenses.

Source: ILPA

A "Pay to Play" provision is a requirement for an existing investor to participate in a subsequent investment round, especially a Down Round. Where Pay to Play provisions exist, an investor's failure to purchase its pro-rata portion of a subsequent investment round will result in conversion of that investor's Preferred Stock into Common Stock or another less valuable series of Preferred Stock.

Source: ILPA

The length of time which is takes to recover your initial capital on any investment, i.e., for the investment to return 1x. Once widely used as a means of evaluating rival projects or investments for capital allocation purposes but now largely superseded by IRR.

Source: ILPA

Low priced issues, often highly speculative, selling at less than $5/share.

Source: ILPA

A pension fund that is regulated under private or public sector law.

Source: Invest Europe

A process by which an independent verifier conducts testing of a specific composite or pooled fund in accordance with the required performance examination procedures of the GIPS standards.

Source: GIPS

A report issued by an independent verifier after a performance examination has been performed.

Source: GIPS

A type of investment management fee that is typically based on the portfolio’s performance on an absolute basis or relative to a benchmark or other reference point.

Source: GIPS

General information regarding the performance-based fee. It must include enough information to allow a prospective client or prospective investor to understand the key characteristics of the performance-based fee. It must include relevant information (e.g., performance-based fee rate, hurdle rate, clawback, high watermark, reset frequency, accrual frequency, crystallization schedule) and on what basis fees are charged.

Source: GIPS

Includes:

• Information expressed in terms of investment return and risk.

• Other information and input data that directly relate to the calculation of investment return and risk (e.g., portfolio holdings), as well as information derived from investment return and risk input data (e.g., performance contribution or attribution).

Source: GIPS

The length of the period over which a variable is measured (e.g., a variable measured at a monthly periodicity consists of observations for each month).

Source: GIPS

Since-inception paid-in capital divided by cumulative committed capital.

Source: GIPS

A situation when a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares.

Source: ILPA

(Payment in Kind) PIK Debt are bonds that may pay bondholders compensation in a form other than cash.

Source: ILPA

A person or entity acting as an agent for the fundraising team in raising investment funds. Placement advisers should comply with Invest Europe’s separate Guidance for Placement Advisers (see page 65).

Source: Invest Europe

A company that specializes in finding institutional investors that are willing and able to invest in a private equity fund or company issuing securities. Sometimes the "issuer" will hire a placement agent so the fund partners can focus on management issues rather than on raising capital. In the U.S., these companies are regulated by the NASD and SEC.

Source: ILPA

Le Securities and Exchange Commission online version of Plain English Handbook: How to Create Clear SEC Disclosure Documents.

Source: ILPA

An investment that has a very healthy rate of return. The inverse of an old venture capital adage claims that "plums ripen later than lemons."

Source: ILPA

A right issued by a corporation as a preventative antitakeover measure. It allows rightholders to purchase shares in either their company or in the combined target and bidder entity at a substantial discount, usually 50%. This discount may make the takeover prohibitively expensive.

Source: ILPA

A fund whose ownership interests may be held by more than one investor.

Source: GIPS

General information regarding the investment mandate, objective, or strategy of the pooled fund. The pooled fund description must include enough information to allow a prospective investor to understand the key characteristics of the pooled fund’s investment mandate, objective, or strategy, including:
• The material risks of the pooled fund’s strategy.
• How leverage, derivatives, and short positions may be used, if they are a material part of the strategy.
• If illiquid investments are a material part of the strategy.

Source: GIPS

The return on investments reduced by any transaction costs.

Source: GIPS

The date when the pooled fund’s track record starts. For a limited distribution pooled fund, the pooled fund inception date may be based on the following dates:
• When investment management fees are first charged.
• When the first investment-related cash flow takes place.
• When the first capital call is made.
• When the first committed capital is closed and legally binding.

Source: GIPS

Le pooled fund gross return reduced by all fees and expenses, including investment management fees, administrative fees, and other costs.

Source: GIPS

An investment vehicle that invests in underlying investment vehicles.

Source: GIPS

The date when the pooled fund’s assets have all been distributed, or when investment discretion ends.

Source: GIPS

A legal entity that pools various investors' capital and deploys it according to a specific investment strategy.

Source: ILPA

A method of calculating an aggregate IRR by summing cash flows together to create a portfolio cash flow. The IRR is subsequently calculated on this portfolio cash flow.

Source: ILPA

An individually managed group of investments. A portfolio may be a segregated account or a pooled fund, including assets managed by a sub-advisor for which the firm has discretion over the selection of the sub-advisor.

Source: GIPS

ILPA : A business entity that has secured at least one round of financing from one or more private equity funds. Also known as an investee firm. A Company in which a given fund has invested.

Invest EUROPE : A company or companies in which a fund has made an investment.

Source: ILPA, Invest EUROPE

A benchmark created using the benchmarks of the individual portfolios in the composite.

Source: GIPS

Le valuation of a company immediately after the most recent round of financing. For example, a venture capitalist may invest $3.5 million in a company valued at $2 million "pre-money" (before the investment was made). As a result, the startup will have a post-money valuation of $5.5 million.

Source: ILPA

The amount of clawback payable to the General Partner if the fund is liquidated. A clawback obligation represents the General Partners' promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. When triggered, the clawback will require that the General Partner return to the fund's Limited Partners an amount equal to what is determined to be excess distributions.

Source: ILPA

Le valuation of a company prior to a round of investment. This amount is determined by using various calculation models, such as discounted P/E ratios multiplied by periodic earnings or a multiple times a future cash flow discounted to a present cash value and a comparative analysis to comparable public and private companies.

Source: ILPA

A shareholder's right to acquire an amount of shares in a future offering at current prices per share paid by new investors, whereby his/her percentage ownership remains the same as before the offering.

Source: ILPA

Shares of a firm that encompass preferential rights over ordinary common shares, such as the first right to dividends and any capital payments.

Source: ILPA

A dividend ordinarily accruing on preferred shares payable where declared and superior in right of payment to common dividends.

Source: ILPA

A private equity fund's preferred scope for making investments. This varies by market segment, with many venture funds preferring ranges below $10 million and many buyout/mezzanine funds preferring ranges between $10 million and $50 million or higher.

Source: ILPA

The minimum return to investors to be achieved before a carry is permitted. A hurdle rate of 10% means that the private equity fund needs to achieve a return of at least 10% per annum before the profits are shared according to the carried interest arrangement.

Source: ILPA

A class of capital stock that may pay dividends at a specified rate and that has priority over common stock in the payment of dividends and the liquidation of assets. Many venture capital investments use preferred stock as their investment vehicle. This preferred stock is convertible into common stock at the time of an IPO.

Source: ILPA

An investment vehicle that makes direct investments rather than investing in other investment vehicles.

Source: GIPS

The market with the greatest volume and level of activity for the potential sale of an asset.

Source: IPEV

Investment activity involving early-stage ventures, management buyouts, management buyins, infrastructure, credit, and similar Investments.

Source: IPEV

ILPA: Equity securities of companies that have not ""gone public"" (are not listed on a public exchange). Private equities are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace. In addition, there are many transfer restrictions on private securities. Investors in private securities generally receive their return through one of three ways: an initial public offering, a sale or merger, or a recapitalization.

Invest EUROPE: Private equity provides funding in equity form from funds to acquire a majority or minority stake in portfolio companies in different stages of development across a wide range of sectors. The term is widely used and, for the purposes of this Handbook, is used as a generic term to encompass venture capital (typically a minority stake invested in an early-stage or pre-profitable business), through to growth capital or larger ‘buyouts’ (a minority or majority stake invested in portfolio companies at critical points of their development), as well as infrastructure investments.

GIPS: Investment strategies include, but are not limited to, venture capital, leveraged buyouts, consolidations, mezzanine and distressed debt investments, and a variety of hybrids, such as venture leasing and venture factoring.

Source: ILPA, Invest EUROPE, GIPS

IPEV: A Private Capital fund that invests principally in the equity of private companies, or engages in buyouts of public companies, in order to achieve the delisting of public equity.

Europarl: This is a fund that invests specialised investors' money directly in private companies. The strategy of managers of a private equity fund is to use its investors' contributions to acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity funds generally receive a return on their investments by offering shares of the company to the public, selling the company for cash or exchanging it for shares in another company. They can also distribute funds to the investors by recuperating some of the company's profits or increasing the company's debt. A common way for private equity funds to acquire a significant stake in a company is through a leveraged buyout (LBO) whereby a significant percentage of the finance used to purchase the stake is obtained through borrowing (leverage). In this case most of the finances needed do not come from the fund's investors but from debt. The assets of the acquired company are used as collateral for the borrowed capital, with much of the debt ending up on the books of the company. Proponents of private equity investments argue that removing a company from the stock market enables its management to take a longer term view of the business’s interests, and that having debt on the company’s books acts as an incentive for managers to run their businesses more efficiently. Critics counter that the long-term viability of acquired companies can be put at risk by excessive debt and have compared some private equity deals to asset stripping.

Source: IPEV, Europarl

A body which has produces a set of advisory valuation guidelines in the USA.

Source: ILPA

Investments by a private equity fund in a publicly traded company, usually at a discount.

Source: ILPA

A transaction in which accredited investors are allowed to purchase stock in a public company through an exemption allowed by provincial securities regulation. As a result of the exemption, there is less disclosure required by these investors than for other more widely distributed issues, like IPOs and secondary offerings.

Source: ILPA

Includes real assets (e.g., real estate and infrastructure), private equity, and similar investments that are illiquid, not publicly traded, and not traded on an exchange.

Source: GIPS

ILPA: Also known as a Reg. D offering. The sale of a security (or in some cases, a bond) directly to a limited number of investors. Avoids the need for S.E.C. registration if the securities are purchased for investment as opposed to being resold. The size of the issue is not limited, but its sale is limited to a maximum of thirty-five non-accredited investors.

Europarl: Private placement (or non-public offering) is a way of raising capital through a sale (offering) of shares without an initial public offering, usually to a small number of chosen private investors. Purchasers are often institutional investors such as banks, insurance companies or pension funds. Such an offering is exempt from many of the reporting and information requirements necessary in the case of a public offering.

Source: ILPA, Europarl

Also known as an Offering Memorandum or "PPM". A document that outlines the terms of securities to be offered in a private placement. Resembles a business plan in content and structure. A formal description of an investment opportunity written to comply with various federal securities regulations. A properly prepared PPM is designed to provide specific information to the buyers in order to protect sellers from liabilities related to selling unregistered securities. Typically PPMs contain: a complete description of the security offered for sale, the terms of the sales, and fees; capital structure and historical financial statements; a description of the business; summary biographies of the management team; and the numerous risk factors associated with the investment. In practice, the PPM is not generally used in angel or venture capital deals, since most sophisticated investors perform thorough due diligence on their own and do not rely on the summary information provided by a typical PPM.

Source: ILPA

Private securities are securities that are not registered and do not trade on an exchange. The price per share is set through negotiation between the buyer and the seller or issuer.

Source: ILPA

A professionally managed private equity fund that raises capital from external sources of supply, such as institutional investors. Most private-independent funds utilize Limited Partnerships and related vehicles.

Source: ILPA

Investments owned by the firm, the firm’s management, and/or the firm’s parent company that are managed by the firm. General partner assets in a pooled fund are considered proprietary assets.

Source: GIPS

Any person or entity that has expressed interest in one of the firm’s composite strategies and qualifies to invest in the composite. Current clients may also qualify as prospective clients for any composite strategy that differs from their current investment strategy. Investment consultants and other third parties are included as prospective clients if they represent individuals or entities that qualify as prospective clients.

Source: GIPS

Any person or entity that has expressed interest in one of the firm’s pooled funds and qualifies to invest in the pooled fund. Current pooled fund investors may also qualify as prospective investors for any pooled fund that differs from their current pooled fund. Investment consultants and other third parties are included as prospective investors if they represent individuals or entities that qualify as prospective investors.

Source: GIPS

A formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. A prospectus must be filed with the SEC and be given to all potential investors. Companies offering securities, mutual funds, and offerings of other investment companies including Business Development Companies are required to issue prospectuses describing their history, investment philosophy or objectives, risk factors and financial statements. Investors should carefully read them prior to investing.

Source: ILPA

A professionally managed private equity fund that raises capital on a retail basis from individual Canadians, with the assistance of provincial tax credits. At present, PVCCs operate according to some legislative specifications in British Columbia and Quebec.

Source: ILPA

The performance of a public market index expressed in terms of a money-weighted return (MWR), using the same cash flows and timing as those of the composite or pooled fund over the same period. A PME can be used as a benchmark by comparing the MWR of a composite or pooled fund with the PME of a public market index.

Source: GIPS

- First divestment following flotation (IPO): The sale or distribution of a private company’s shares to the public for the first time by listing the company on the stock exchange.
- Sale of quoted equity post flotation: It includes sale of quoted shares only if connected to a former private equity investment, e.g. sale of quoted shares after a lock-up period.

Source: Invest Europe

The return on investments that is not reduced by any transaction costs incurred during the period.

Source: GIPS

The right to sell a security at a given price (or range) within a given time period.

Source: ILPA

Questions and Answers

Qualified professional asset manager as defined by ERISA.

Source: ILPA

A Quoted Investment is any financial instrument for which quoted prices reflecting normal market transactions are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency.

Source: IPEV

Ratchets reduce the price at which venture capitalists can convert their debt into preferred stock, which effectively increases their percentage of equity. Often referred to as an "anti-dilution adjustment".

Source: ILPA

Capital provided for a significant overhaul of a company's financial structure.

Source: ILPA

Real estate includes wholly owned or partially owned:
• Investments in land, including products grown from the land (e.g., timber or crops).
• Buildings under development, completed buildings, and other structures or improvements.
• Equity-oriented debt (e.g., participating mortgage loans).
• Private interest in a property for which some portion of the return to the investor at the time of investment relates to the performance of the underlying real estate.

Source: GIPS

Realisation is the sale, redemption, or repayment of an Investment, in whole or in part; or the insolvency of an Investee Company, where no significant return to the Fonds is envisaged.

Source: IPEV

An underlying investment of a fund that has been exited.

Source: ILPA

Cash and/or securities received by a partner.

Source: ILPA

The total amount of distributions that may be recalled by the fund at a future date.

Source: ILPA

Le reorganization of a company's capital structure. A company may seek to save on taxes by replacing preferred stock with bonds in order to gain interest deductibility. Recapitalization can be an alternative exit strategy for venture capitalists and leveraged buyout sponsors.

Source: ILPA

A suggested provision, task, or action that should be followed or performed. A recommendation is considered to be best practice but is not a requirement. (See “should.”)

Source: GIPS

The act a broker/dealer makes with an investor to confirm a transaction.

Source: ILPA

The common name for a preliminary prospectus, due to the red SEC required legend on the cover.

Source: ILPA

Redeemable preferred stock, also known as exploding preferred, at the holder's option after (typically) five years, which in turn gives the holders (potentially converting to creditors) leverage to induce the company to arrange a liquidity event. The threat of creditor status can move the founders off the dime if a liquidity event is not occurring with sufficient rapidity.

Source: ILPA

The right or obligation of a company to repurchase its own shares. Redemption Rights - Rights to force the company to purchase shares (a "put") and more infrequently the company's right to force investor to sell their shares (a "call"). A Put allows one to liquidate an investment in the event an IPO or public merger becomes unlikely. One may also negotiate a Put effective when the company defaults or fails to make payments upon a key employee's death, etc.

Source: ILPA

Le SEC's review process of all securities intended to be sold to the public. The SEC requires that a registration statement be filed in conjunction with any public securities offering. This document includes operational and financial information about the company, the management and the purpose of the offering. The registration statement and the prospectus are often referred to interchangeably. Technically, the SEC does not "approve" the disclosures in prospectuses.

Source: ILPA

Provisions in the investment agreement that allow investors to sell stock via the public market. Means by which one can transfer shares in compliance with the securities laws subject to Lock-Up and Market Stand-off Agreements.
Long-form Demand - Demand registration before the company becomes public. Usually starts one-three years after making an investment and may involve one or two demands for a percentage of stock. Company will use the SEC's long-form S-1.
Short-form Demand - Demand made after the company is publicly traded and is eligible to use SEC's Form S-3.
Piggyback - Company is registering stock either for itself or other stockholders and one can "piggyback" a portion of shares for registration onto the company's registration. Usually have these rights for up to five years after the company becomes public, but cannot exercise them for mergers or employee offerings.

Source: ILPA

SEC provision for simplified registration for small issues of securities. A Reg. A issue may require a shorter prospectus and carries lesser liability for directors and officers for misleading statements. The conditional small issues securities exemption of the Securities Act of 1933 is allowed if the offering is a maximum of $5,000,000 U.S. Dollars.

Source: ILPA

The regulation outlines registration requirements for Securities Act of 1933.

Source: ILPA

Regulation D, is the rule (Reg. D is a "regulation" comprising a series of "rules") that allow for the issuance and sale of securities to purchasers if they qualify as accredited investors.

Source: ILPA

The rules relating to offers and sales made outside the U.S. without SEC Registration.

Source: ILPA

Reg. S-B of the Securities Act of 1933 governs the Integrated Disclosure System for Small Business Issuers.

Source: ILPA

The Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975.

Source: ILPA

The regulation that governs the requirements for financial statements under the Securities Act of 1933, and the Securities Exchange Act of 1934.

Source: ILPA

Reorganizations are significant changes in the equity base of a company such as converting all outstanding shares to Common Stock, or combining outstanding shares into a smaller number of shares (a reverse split). A reorganization is frequently done when a company has already had a few rounds of venture financing but has not been able to successfully increase the value of the company and therefore is doing a Down Round that is essentially a restart of the company.

Source: ILPA

If the private equity firm provided loans or bought preference shares in the company at the time of investment, then their repayment according to the amortisation schedule represents a decrease of the financial claim of the firm into the company, and hence a divestment.

Source: Invest Europe

Minority stake purchase from another private equity investment organisation or from another shareholder or shareholders.

Source: Invest Europe

The current fair stated value for each of the investments, as reported by the General Partner of the fund.

Source: ILPA

Representations and warranties by the vendor placed in the sale agreement when a company changes hands. They most usually cover things such as contingent liabilities, the company's tax position and the accuracy of the most recent audited accounts.

Source: ILPA

A provision, task, or action that must be followed or performed.

Source: GIPS

Financing made available to an existing business, which has experienced financial distress, with a view to re-establishing prosperity.

Source: Invest Europe

The remaining equity that limited partners or investors have in an investment vehicle at the end of the performance reporting period.

Source: GIPS

ILPA: The ratio of the current value of all remaining investments within a fund to the total contributions of Limited Partners to date. As defined in the current GIPS Standards (www.gipsstandards.org/standards/current/Pages/index.aspx), any reinvested capital (resulting from recallable distributions) should be included in the denominator of this ratio.

GIPS : Residual value divided by since-inception paid-in capital.

Source: ILPA, GIPS

‘Responsible investment’ involves an investment approach that integrates ESG factors into corporate conduct, investment decisions and ownership activities. A responsible investor will commonly be interested in the ESG conduct, impact or performance of a portfolio company it invests in, and in case of an LP, this may also include ESG aspects related to the GP.

Source: Invest Europe

Public securities that are not freely tradable due to SEC regulations.

Source: ILPA

Shares acquired in a private placement are considered restricted shares and may not be sold in a public offering absent registration, or after an appropriate holding period has expired. Non-affiliates must wait one year after purchasing the shares, after which time they may sell less than 1% of their outstanding shares each quarter. For affiliates, there is a two-year holding period.

Source: ILPA

Capital provided to an established firm, usually in a traditional sector, that is undergoing financial distress or a major re-organization, but is perceived as having long-term commercial viability.

Source: ILPA

A category of professionally managed private equity fund that relies on tax-assisted retail fund-raising, composed essentially of Labour-Sponsored Venture Capital Corporations and Provincial Venture Capital Corporations.

Source: ILPA

See: Internal Rate of Return.

Source: ILPA

The act of offering new, publicly-traded shares in a firm that was previously taken private through a buyout transaction.

Source: ILPA

The legal principle that actions, such as anti-takeover measures, that promote the value of an auction process are allowable, whereas those that thwart the value of an auction process are not allowed. The duty is triggered when a company is in play as a target acquisition.

Source: ILPA

The right of first refusal gives the holder the right to meet any other offer before the proposed contract is accepted.

Source: ILPA

Issuance of "rights" to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed-end funds, which cannot otherwise issue additional ordinary shares.

Source: ILPA

The chance of loss on an investment due to many factors including inflation, interest rates, default, politics, foreign exchange, call provisions, etc. In Private Equity, risks are outlined in the Risk Factors section of the Placement Memorandum.

Source: ILPA

A private company strategy for gaining access to public markets through takeover of a listed business entity.

Source: ILPA

Rule 144 provides for the sale of restricted stock and control stock. Filing with the SEC is required prior to selling restricted and control stock, and the number of shares that may be sold is limited.

Source: ILPA

A safe harbor exemption from the registration requirements of Section 5 of the 1933 Act for resales of certain restricted securities to qualified institutional buyers, which are commonly referred to as "QIBs." In particular, Rule 144A affords safe harbor treatment for reoffers or resales to QIBs - by persons other than issuers - of securities of domestic and foreign issuers that are not listed on a U.S. securities exchange or quoted on a U.S. automated inter-dealer quotation system. Rule 144A provides that reoffers and resales in compliance with the rule are not "distributions" and that the reseller is therefore not an "underwriter" within the meaning of Section 2(a)(11) of the 1933 Act. If the reseller is not the issuer or a dealer, it can rely on the exemption provided by Section 4(1) of the 1933 Act. If the reseller is a dealer, it can rely on the exemption provided by Section 4(3) of the 1933 Act.

Source: ILPA

Provides an exemption from the registration requirements of the Securities Act of 1933 for intrastate offerings, if certain requirements are met. One requirement is that 100% of the purchasers must be from within one state.

Source: ILPA

Rule 501 of Regulation D defines Accredited Investor.

Source: ILPA

Company can raise up to $1 million in any 12-month period from any number or investors provided that the company does not advertise the sale. There are restrictions on the resale of the securities, but there is no requirement of disclosure. Investors need not to be sophisticated nor is any formal private offering memorandum required. However, offering is subject to the general antifraud provisions of the federal securities laws requiring that all material information be accurately presented to purchasers.

Source: ILPA

Rule 505 of Regulation D is an exemption for limited offers and sales of securities not exceeding $5,000,000. Company can raise up to $5 million in a 12-month period. Security sales can be made to an unlimited number of accredited investors plus 35 additional investors. Disclosure documents, i.e. a private placement memorandum, must be delivered to all non-accredited investors. If dealing with accredited investors, the number of these is unlimited, but there is no advertising allowed.

Source: ILPA

A corporation that limits its ownership structure to 100 shareholders and disallows certain types of shareholders [e.g. partnerships cannot hold shares in an S corporation.] An S corporation does not pay taxes, rather, similar to a partnership, its owners pay taxes on their proportion of the corporation's profits at their individual tax rates.

Source: ILPA

The buyer of the portfolio company is a private equity firm.

Source: Invest Europe

A financial institution is an entity that provides financial services for its clients:
- Depositary Institutions: deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies
- Contractual Institutions : Insurance companies and pension funds
- Investment Institutes other than direct private equity firms.

Source: Invest Europe

The costs associated with buying or selling shares of a pooled fund. These costs may also be known as subscription and redemption costs or as entry and exit fees.

Source: GIPS

Small Business Investment Company. A company licensed by the Small Business Administration to receive government leverage in order to raise capital to use in venture investing.

Source: ILPA

Small Business Innovation Research Program. See Small Business Innovation Development Act of 1982.

Source: ILPA

esma: Securities and Exchange Commission

ILPA: The SEC is an independent, nonpartisan, quasi-judicial regulatory agency that is responsible for administering the federal securities laws. These laws protect investors in securities markets and ensure that investors have access to all material information concerning publicly traded securities. Additionally, the SEC regulates firms that trade securities, people who provide investment advice, and investment companies.

Source: esma, ILPA

The market for the sale of partnership interests in private equity funds. Sometimes limited partners chose to sell their interest in a partnership, typically to raise cash or because they cannot meet their obligation to invest more capital according to the takedown schedule. Certain investment companies specialize in buying these partnership interests at a discount.

Source: ILPA

The sale of private or restricted holdings in a portfolio company by one investor to another.

Source: ILPA

The sale of private or restricted holdings in a portfolio company to other investors. See secondary market definition.

Source: ILPA

A Secondary Transaction refers to a transaction that occurs when a holder of an unquoted or illiquid interest in a Fund trades their interest to another party.

Source: IPEV

The federal law covering new issues of securities. It provides for full disclosure of pertinent information relating to the new issue and also contains antifraud provisions.

Source: ILPA

The federal law that established the Securities and Exchange Commission. The act outlaws misrepresentation, manipulation and other abusive practices in the issuance of securities.

Source: ILPA

Funding provided before the investee company has started mass production/distribution with the aim to complete research, product definition or product design, also including market tests and creating prototypes. This funding will not be used to start mass production/distribution.

Source: Invest Europe

Capital provided to facilitate commercialization of new product concepts, often from laboratories, research centres or entrepreneurs. If successful, a seed financing may result in a Start-up.

Source: ILPA